Although originally considered toxic, hydrogen sulfide (H(2)S) has been implicated in mediating various biological processes. Nevertheless, its cellular targets and mode of action are not well understood. Protein tyrosine phosphatases (PTPs), which regulate numerous signal transduction pathways, use an essential cysteine residue at the active site, which is characterized by a low pK(a) and is susceptible to reversible oxidation. Here, we report that PTP1B was reversibly inactivated by H(2)S, in vitro and in cells, through sulfhydration of the active-site cysteine residue. Unlike oxidized PTP1B, the sulfhydrated enzyme was preferentially reduced in vitro by thioredoxin, compared to glutathione or dithiothreitol. Sulfhydration of PTP1B in cells required the presence of cystathionine γ-lyase (CSE), a critical enzyme in H(2)S production, and resulted in inhibition of phosphatase activity. Suppression of CSE decreased H(2)S production and decreased the phosphorylation of tyrosine-619 in PERK [protein kinase-like endoplasmic reticulum (ER) kinase], thus reducing its activation in response to ER stress. PERK, which phosphorylates the eukaryotic translational initiation factor 2, leading to attenuation of protein translation, was a direct substrate of PTP1B. In addition, CSE knockdown led to activation of the nonreceptor tyrosine kinase SRC, previously shown to be mediated by PTP1B. These effects of suppressing H(2)S production on the response to ER stress were abrogated by a small-molecule inhibitor of PTP1B. Together, these data define a signaling function for H(2)S in inhibiting PTP1B activity and thereby promoting PERK activity during the response to ER stress.