Growth factors induce intracellular production of reactive oxygen species in non-phagocytic cells and elevation of their phosphorylated protein tyrosine level. The latter can be achieved by activating protein-tyrosine kinases and/or inactivating protein-tyrosine phosphatases (PTPs). A highly abundant PTP, PTP-1B, is known to be inactivated by oxidation of its catalytic site Cys-215. We show that O-(2) is kinetically more efficient and chemically more specific oxidant than H(2)O(2) for inactivating PTP-1B. The second-order rate constant for the O-(2)- and H(2)O(2)-mediated inactivation is 334 +/- 45 M(-1) s(-1) and 42.8 +/- 3.8 M(-1) s(-1), respectively. PTP-1B oxidized by H(2)O(2) exhibits significantly more oxidized methionine residues and shows a lower degree of reversibility. The initial oxidative product, the Cys-215 sulfenic derivative, can easily be oxidized further to its irreversible sulfinic and sulfonic derivatives. This step is prevented by glutathionylation of the sulfenic derivative to form a S-glutathionylated PTP-1B, which can be reactivated by dithiothreitol or thioltransferase. Thus, a signal transduction mechanism mediated by the O-(2) and the participation of glutathione is proposed for the regulation of PTP-1B. This mechanism is supported by the in vivo demonstration that glutathionylated PTP-1B at Cys-215 is formed in A431 cells when they were treated with epidermal growth factor.