Polycythemia vera (PV) is a human clonal hematologic disorder. Previously we demonstrated that erythroid colony-forming cells (ECFCs) from PV patients contained a hyperactive membrane-associated tyrosine phosphatase. We now show that this phosphatase corresponded to protein tyrosine phosphatase (PTP)-MEG2, an intracellular enzyme with a putative lipid-binding domain. The increased activity of PTP-MEG2 in PV cells is due to its elevated distribution in the membrane fraction. With the development of ECFCs to mature red cells, the protein level of PTP-MEG2 decreased gradually, but membrane-associated PTP-MEG2 was sustained for a longer period of time in PV cells, which correlated with an enhanced colony-forming capability of the cells. Importantly, expression of dominant-negative mutant forms of PTP-MEG2 suppressed in vitro growth and expansion of both normal and PV ECFCs. The data indicate that PTP-MEG2 has an important role in the development of erythroid cells.