In the present study we examined involvement of nuclear protein tyrosine phosphatase TC-PTP in PRL-mediated signaling. TC-PTP could dephosphorylate signal transducer and activator of transcription 5a (STAT5a) and STAT5b, but the apparent dephosphorylation activity of TC-PTP was weaker than that of cytosolic PTP1B 30 min after PRL stimulation in transfected COS-7 cells, whereas both STAT5a and STAT5b were dephosphorylated to the same extent by recombinant TC-PTP and PTP1B in vitro. Tyrosine-phosphorylated STAT5 was coimmunoprecipitated with substrate trapping mutants of TC-PTP, suggesting that STAT5 is a specific substrate of TC-PTP. These observations were further extended in mammary epithelial COMMA-1D cells stably expressing TC-PTP. A time-course study revealed that dephosphorylation of STAT5 by TC-PTP was delayed compared with that by cytosolic PTP1B due to nuclear localization of TC-PTP throughout PRL stimulation in mammary epithelial cells. Endogenous beta-casein gene expression and beta-casein gene promoter activation in COS-7 cells were largely suppressed by TC-PTP wild type as well as catalytically inactive mutants, suggesting that stable complexes formed between STAT5 and TC-PTP in the nucleus. Taken together, we conclude that TC-PTP is catalytically competent with respect to dephosphorylation and deactivation of PRL-activated STAT5 in the nucleus.