The noncatalytic domain of protein-tyrosine phosphatase (PTP)-PEST contains a binding site for the focal adhesion-associated protein paxillin. This binding site has been narrowed to a 52-residue sequence that is composed of two nonoverlapping, weak paxillin binding sites. The PTP-PEST binding site on paxillin has been mapped to the two carboxyl-terminal LIM (lin11, isl-1, and mec-3) domains. Transient expression of PTP-PEST reduced tyrosine phosphorylation of p130(cas), as anticipated. A PTP-PEST mutant defective for binding p130(cas) does not cause a reduction in its tyrosine phosphorylation in vivo. Expression of PTP-PEST also caused a reduction of phosphotyrosine on paxillin. Expression of mutants of PTP-PEST with deletions in the paxillin-binding site did not associate with paxillin in vivo and failed to cause a reduction in the phosphotyrosine content of paxillin. These results demonstrate that paxillin can serve as a PTP-PEST substrate in vivo and support the model that a noncatalytic domain interaction recruits paxillin to PTP-PEST to facilitate its dephosphorylation.