During neural development, cells interact dynamically with each other and with the extracellular matrix, using cell signaling to control differentiation, axonogenesis, and survival. Enzymes that regulate protein tyrosine phosphorylation often lie at the core of such cell signaling. Protein tyrosine phosphatases (PTPases) are recognized as being of central importance here, and a growing family of PTPases are now known to be expressed in embryonic neurons and glia. Both receptor-like and cytoplasmic enzymes have been identified. The receptor family includes immunoglobulin superfamily members that influence cell-cell adhesion, proteoglycans that control neurite growth, and enzymes in Drosophila that regulate axon guidance and target cell recognition. Cytoplasmic PTPases are implicated in nerve cell commitment and potentially in the regulation of cell survival. This review outlines what we currently know about PTPases in the nervous system and presents concepts concerning their possible modes of action.