Low molecular weight phosphotyrosine phosphatase (LMW-PTP) is an enzyme involved in platelet-derived growth factor-induced mitogenesis and cytoskeleton rearrangement. Our previous results demonstrated that LMW-PTP is able to bind and dephosphorylate activated platelet-derived growth factor receptor (PDGF-r), thus inhibiting cell proliferation. Here we revisit the role of LMW-PTP on activated PDGF-r dephosphorylation. We demonstrate that LMW-PTP preferentially acts on cell surface PDGF-r, excluding the internalized activated receptor pool. Many phosphotyrosine phosphatases act by site-selective dephosphorylation on several sites of PDGF-r, but until now, there has been no evidence of a direct involvement of a specific phosphotyrosine phosphatase in the dephosphorylation of the 857 kinase domain activation tyrosine. Here we report that LMW-PTP affects the kinase activity of the receptor through the binding and dephosphorylation of Tyr-857 and influences many of the signal outputs from the receptor. In particular, we demonstrate a down-regulation of phosphatidylinositol 3-kinase, Src homology phosphatase-2, and phospholipase C-gamma1 binding but not of MAPK activation. In addition, we report a slight action of LMW-PTP on Tyr-716, which directs MAPK activation through Grb2 binding. On the basis of these results, we propose a key role for LMW-PTP in PDGF-r down-regulation through the dephosphorylation of the activation loop Tyr-857, thus determining a general negative regulation of all downstream signals, with the exception of those elicited by internalized receptors.