Protein tyrosine phosphorylation is an important mechanism of eukaryotic cell signalling which is regulated by protein-tyrosine kinases and protein-tyrosine phosphatases. Here we report the molecular cloning of the first zebrafish protein-tyrosine phosphatase, zf-PTP-1B, the homologue of human PTP-1B. Zf-PTP-1B was catalytically active and localised to the endoplasmic reticulum, like human PTP-1B. Zf-PTP-1B was maternally expressed in zebrafish embryos, and low ubiquitous expression was detected up to day 7 of development. Microinjection of zf-PTP-1B RNA induced pleiotropic, but reproducible developmental defects. Evaluation of the live embryos at 24 h post fertilisation indicated that zf-PTP-1B induced defects in somite formation. The phenotype was dependent on protein-tyrosine phosphatase activity of zf-PTP-1B, since embryos injected with catalytically inactive zf-PTP-1B-C213S developed normally. Co-injection of wild type and inactive zf-PTP-1B led to a rescue of the zf-PTP-1B-induced phenotype, suggesting that zf-PTP-1B-C213S had dominant negative activity. The zf-PTP-1B-induced phenotype suggests that proper tyrosine phosphorylation of key proteins is essential for early development, most notably somitogenesis.