The LAR family tyrosine phosphatase LAR-PTP2B (RPTP sigma) was previously shown to be expressed in the central and peripheral nervous system. Here we show that LAR-PTP2, the larger alternatively spliced form of the gene, is expressed in proliferating undifferentiated lung epithelia in a developmentally regulated manner: Using in situ hybridization and parallel immunostaining with proliferating cell nuclear antigen to detect proliferating cells, we demonstrate that LAR-PTP2 is expressed exclusively in the undifferentiated epithelial cell layer lining the bronchi, bronchioles, and air sacs in late fetal development and in the neonatal lung. These cells correspond to Clara and fetal alveolar type II cells, as determined by parallel immunostaining with antibodies to surfactant proteins A and B. LAR-PTP2 expression declined progressively with postnatal development, and by adult stage there was no detectable expression in the airways or in the distal (type I and II) mature nonproliferating alveolar epithelial cells. These results suggest that LAR-PTP2 may be involved in the regulation of epithelial cell proliferation/differentiation during lung development.