CD45 is a transmembrane, two-domain protein-tyrosine phosphatase expressed exclusively in nucleated hematopoietic cells. The Src family kinase, Lck, is a major CD45 substrate in T cells and CD45 dephosphorylation of Lck is important for both T cell development and activation. However, how the substrate specificity of phosphatases such as CD45 is achieved is not well understood. Analysis of the interaction between the cytoplasmic domain of CD45 and its substrate, Lck, revealed that the active, membrane-proximal phosphatase domain of CD45 (CD45-D1) bound to the phosphorylated Lck kinase domain, the SH2 domain, and the unique N-terminal region of Lck. The second, inactive phosphatase domain (CD45-D2) bound only to the kinase domain of Lck. CD45-D2 was unable to bind phosphotyrosine, and its interaction with the kinase domain of Lck was independent of tyrosine phosphorylation. The binding of CD45-D2 was localized to subdomain X (SD10) of Lck. CD45-D2 bound similarly to Src family kinases but bound Csk to a lesser extent and did not bind significantly to the less related kinase, Erk1. CD45 dephosphorylated Lck and Src at similar rates but dephosphorylated Csk and Erk1 at lower rates. Replacement of Erk1 SD10 with that of Lck resulted in the binding of CD45-D2 and the conversion of Erk1 to a more efficient CD45 substrate. This demonstrates a role for CD45-D2 in binding substrate and identifies the SD10 region in Lck as a novel site involved in substrate recognition.