The protein-tyrosine phosphatase epsilon (PTP epsilon) is a transmembranal, receptor-type protein that possesses two phosphatase catalytic domains characteristic of transmembranal phosphatases. Here we demonstrate the existence of a nontransmembranal isoform of PTP epsilon, PTP epsilon-cytoplasmic. PTP epsilon-cytoplasmic and the transmembranal isoform of PTP epsilon have separate, nonoverlapping expression patterns. Further, the data clearly indicate that control of which of the two isoforms is to be expressed is initiated at the transcriptional level, suggesting that they have distinct physiological roles. PTP epsilon-cytoplasmic mRNA is the product of a delayed early response gene in NIH 3T3 fibroblasts, and its transcription is regulated through a pathway that requires protein kinase C. The human homologue of PTP epsilon-cytoplasmic has also been cloned and is strongly up-regulated in the early stages of phorbol 12-tetradecanoate 13-acetate-induced differentiation of HL-60 cells. Sequence analysis indicates and cellular fractionation experiments confirm that this isoform is a cytoplasmic molecule. PTP epsilon-cytoplasmic is therefore the initial example to our knowledge of a nontransmembranal protein-tyrosine phosphatase that contains two tandem of catalytic domains.