Receptor-like protein tyrosine phosphatases (receptor-PTPs) represent a novel family of transmembrane proteins that are thought to play important roles in cellular regulation. They consist of a cytoplasmic catalytic region, a single transmembrane segment and an extracellular, putative ligand-binding domain, but the nature of their physiological ligands is unknown. We have recently cloned a new receptor-PTP (RPTP mu), the ectodomain of which includes an Ig-like and four fibronectin type III-like domains, suggesting that RPTP mu may be involved in cell-cell or cell-matrix interactions. To test this hypothesis, we expressed RPTP mu in insect Sf9 cells using recombinant baculovirus. We demonstrate that RPTP mu dramatically promotes cell-to-cell adhesion in a homophilic, Ca(2+)-independent manner. No adhesion is observed in Sf9 cells expressing a chimeric RPTP mu molecule containing the extracellular domain of the epidermal growth factor receptor. Furthermore, cells expressing an enzymatically inactive, point-mutated RPTP mu or a truncated form of RPTP mu, lacking the entire catalytic region, show adhesive properties indistinguishable from those of wild-type RPTP mu, indicating that the catalytic domain is not essential for RPTP mu-mediated adhesion. These results assign a physiological role for RPTP mu in signaling cell-cell recognition.