The chimeric oncoprotein BCR-Abl exhibits deregulated protein tyrosine kinase activity and is responsible for the pathogenesis of certain human leukemias, such as chronic myelogenous leukemia. The activities of cellular Abl (c-Abl) and BCR-Abl are stringently regulated and the cellular mechanisms involved in their inactivation are poorly understood. Protein tyrosine phosphatases can negatively regulate Abl mediated signaling by dephosphorylating the kinase and/or its substrates. This study investigated the ability of the intracellular T cell protein tyrosine phosphatase (TCPTP/PTPN2) to dephosphorylate and regulate the functions of BCR-Abl and c-Abl. TCPTP is expressed as two alternately spliced isoforms - TC48 and TC45, which differ in their C-termini and localize to the cytoplasm and nucleus respectively. We show that TC48 dephosphorylates BCR-Abl but not c-Abl and inhibits its activity towards its substrate, CrkII. Y1127 and Y1294 residues whose phosphorylation corresponds with BCR-Abl activation status were the primary sites targeted by TC48. Co-localization and immunoprecipitation experiments showed that TC48 interacted with BCR-Abl but not with c-Abl, and BCR domain was sufficient for interaction. TC48 expression resulted in the stabilization of Bcr-Abl protein dependent on its phosphatase activity. Inactivation of cellular TC48 in K562 cells by stable expression of a dominant negative catalytically inactive mutant TC48, enhanced proliferation. TC48 expressing K562 clones showed reduced proliferation and enhanced sensitivity to STI571 compared to control clones suggesting that TC48 can repress the growth of CML cells. This study identifies a novel cellular regulator that specifically inhibits the activity of oncogenic BCR-Abl but not that of the cellular Abl kinase.