Antigen receptor-triggered T-cell activation is mediated by the sequential action of the Src and Syk/Zap-70 families of protein tyrosine kinases (PTKs). Previously, we reported that another PTK termed p50(csk) was a potent negative regulator of T-cell receptor (TCR) signaling because of its ability to inactivate Src-related kinases. This inhibitory effect required the catalytic activity of Csk, as well as its Src homology (SH)3 and SH2 domains. Subsequent studies uncovered that, via its SH3 domain, p50(csk) was associated with PEP, a proline-enriched protein tyrosine phosphatase (PTP) of unknown function expressed in hemopoietic cells. Herein, we have attempted to identify the role of the Csk-PEP complex in T lymphocytes. The results of our experiments showed that, like Csk, PEP was a strong repressor of TCR signaling. This property was dependent on the phosphatase activity of PEP, as well as on the sequence mediating its binding to p50(csk). Through reconstitution experiments in Cos-1 cells, evidence was obtained that Csk and PEP act synergistically to inhibit protein tyrosine phosphorylation by Src-related kinases, and that this effect requires their association. Finally, experiments with a substrate-trapping mutant of PEP suggested that PEP functions by dephosphorylating and inactivating the PTKs responsible for T-cell activation. In addition to giving novel insights into the mechanisms involved in the negative regulation of T-cell activation, these findings indicate that the association of an inhibitory PTK with a PTP constitutes a more efficient means of inhibiting signal transduction by Src family kinases in vivo.