The kinase activity of pp60c-src is specifically and transiently increased during mitosis and repressed during interphase. Loss of cell-cycle control of pp60c-src occurs on mutation of Tyr527 to Phe or when pp60c-src is associated with polyoma middle-T-antigen, and these conditions result in cell transformation or tumorigenesis. In both cases, pp60c-src has elevated kinase activity which is maintained throughout the cell cycle and accompanied by dephosphorylation of the carboxy-terminal negative regulatory Tyr527 site, or mimicry of Tyr527 dephosphorylation in the case of the mutant. Here we report that overexpression of the receptor-like protein tyrosine phosphatase PTP alpha results in persistent activation of pp60c-src kinase, with concomitant cell transformation and tumorigenesis. In PTP alpha-overexpressing cells, the pp60c-src kinase activation is accompanied by dephosphorylation at Tyr527, and direct dephosphorylation of this site by purified PTP alpha occurs in vitro. Our results suggest that PTP alpha is involved in the regulation of cell proliferation, exerting at least some of its effects through pp60c-src kinase, and has oncogenic capability when overexpressed.