The two tandem homologous catalytic domains of PTPalpha possess different kinetic properties, with the membrane proximal domain (D1) exhibiting much higher activity than the membrane distal (D2) domain. Sequence alignment of PTPalpha-D1 and -D2 with the D1 domains of other receptor-like PTPs, and modeling of the PTPalpha-D1 and -D2 structures, identified two non-conserved amino acids in PTPalpha-D2 that may account for its low activity. Mutation of each residue (Val-536 or Glu-671) to conform to its invariant counterpart in PTPalpha-D1 positively affected the catalytic efficiency of PTPalpha-D2 toward the in vitro substrates para-nitrophenylphosphate and the phosphotyrosyl-peptide RR-src. Together, they synergistically transformed PTPalpha-D2 into a phosphatase with catalytic efficiency for para-nitrophenylphosphate equal to PTPalpha-D1 but not approaching that of PTPalpha-D1 for the more complex substrate RR-src. In vivo, no gain in D2 activity toward p59(fyn) was effected by the double mutation. Alteration of the two corresponding invariant residues in PTPalpha-D1 to those in D2 conferred D2-like kinetics toward all substrates. Thus, these two amino acids are critical for interaction with phosphotyrosine but not sufficient to supply PTPalpha-D2 with a D1-like substrate specificity for elements of the phosphotyrosine microenvironment present in RR-src and p59(fyn). Whether the structural features of D2 can uniquely accommodate a specific phosphoprotein substrate or whether D2 has an alternate function in PTPalpha remains an open question.