Protein tyrosine phosphatases (PTPases) contain an active site cysteine which when oxidized leads to loss of phosphatase activity and accumulation of phosphoproteins. For example, oxidants produced following EGF stimulation inhibit PTP1B and enhance EGF receptor phosphorylation. Because NO-derived species also modify reactive thiols, we postulated that NO would reversibly inhibit PTP1B. In our studies we exposed A431 or Jurkat cells to NO donors and measured PTP1B activity or used 3-maleimidylpropionylbiocytin (MPB) to measure thiol redox status. Nitrosothiols led to a rapid inhibition of PTP1B through a mechanism that was greatly enhanced by addition of cysteine to the medium. Analysis of thiol oxidation status using immunoprecipitated PTP1B showed modification consistent with loss of activity. Both enzyme inhibition and modification were reversible in intact cells or after addition of DTT to cell lysates. While DTT reversed oxidation, ascorbate did not, suggesting that formation of a mixed disulfide (possibly glutathionylation) rather than S-nitrosylation accounts for PTP1B inhibition. Importantly, PTP1B inhibition by nitrosothiols led to EGF receptor phosphorylation even in the absence of exogenously added EGF. These findings suggest an important role for NO in modulating signaling pathways since inhibition of PTPases could potentially enhance or prolong activity of phosphoproteins.