In this paper we demonstrate that the cytosolic low-Mr acid phosphatase purified from bovine liver has phosphotyrosine protein phosphatase activity on 32P-autophosphorylated epidermal growth factor (EGF) receptor. This activity was significantly inhibited by orthovanadate and p-hydroxymercuribenzoate; the latter result indicates that free sulfhydryl groups are required for phosphotyrosine phosphatase activity. The enzyme was active in a broad pH range, with maximum activity between pH 5.5 and 7.5. The apparent Km for 32P-EGF receptor dephosphorylation was 4 nM. The enzyme appeared to be specific for phosphotyrosine in that it dephosphorylated the autophosphorylated EGF receptor and L-phosphotyrosine, but not 32P-Ser-casein, L-phosphoserine or L-phosphothreonine. These data suggest that the cytosolic low-Mr acid phosphatase might play a regulatory role in EGF receptor-dependent transmembrane signalling.