Stimulation of various cells with growth factors results in a transient increase in the intracellular concentration of H2O2 that is required for growth factor-induced protein tyrosine phosphorylation. The effect of H2O2 produced in response to epidermal growth factor (EGF) on the activity of protein-tyrosine phosphatase 1B (PTP1B) was investigated in A431 human epidermoid carcinoma cells. H2O2 inactivated recombinant PTP1B in vitro by oxidizing its catalytic site cysteine, most likely to sulfenic acid. The oxidized enzyme was reactivated more effectively by thioredoxin than by glutaredoxin or glutathione at their physiological concentrations. Oxidation by H2O2 prevented modification of the catalytic cysteine of PTP1B by iodoacetic acid, suggesting that it should be possible to monitor the oxidation state of PTP1B in cells by measuring the incorporation of radioactivity into the enzyme after lysis of the cells in the presence of radiolabeled iodoacetic acid. The amount of such radioactivity associated with PTP1B immunoprecipitated from A431 cells that had been stimulated with EGF for 10 min was 27% less than that associated with PTP1B from unstimulated cells. The amount of iodoacetic acid-derived radioactivity associated with PTP1B reached a minimum 10 min after stimulation of cells with EGF and returned to base line values by 40 min, suggesting that the oxidation of PTP1B is reversible in cells. These results indicate that the activation of a receptor tyrosine kinase by binding of the corresponding growth factor may not be sufficient to increase the steady state level of protein tyrosine phosphorylation in cells and that concurrent inhibition of protein-tyrosine phosphatases by H2O2 might also be required.