We have characterized a growth factor-inducible gene, erp, and demonstrated that it encodes a 367-amino-acid nontransmembrane tyrosine phosphatase protein with significant similarity to the vaccinia virus H1 protein. Immunoprecipitation analyses show that the erp protein, ERP, is rapidly induced following serum stimulation of quiescent fibroblasts. ERP has been expressed as a fusion protein with glutathione S-transferase and shown to have tyrosine as well as serine protein phosphatase activity. The enzymatic activity of ERP depends on the presence of reducing agents such as dithiothreitol, and its tyrosine phosphatase activity is inhibited by sodium vanadate, a potent inhibitor of protein tyrosine phosphatases. The number of stable NIH 3T3 clones obtained after transfection with a vector expressing the complete ERP protein is reduced more than 90% compared with that after transfection with a vector expressing a mutated inactive ERP protein. The remaining ERP-expressing clones present a significant increase in the proportion of bi- and multinucleated cells and a decrease in proliferation rate. Studies on the genomic structure reveal that the erp transcription unit is 2.8 kbp long and split into four exons. The erp gene maps to the 17A2-17C region of the murine genome. Our results demonstrate that the protein product of the immediate-early gene erp has a negative effect on cell proliferation.