PTP-S4/TC48 protein tyrosine phosphatase is localized in the nuclear and cytoplasmic membranes. To investigate the role of PTP-S4 in cell growth, adhesion, and transformation, normal and a catalytically inactive mutant form of this phosphatase were expressed in polyoma virus-transformed F111 fibroblast cell line, PyF. Expression of mutant PTP-S4 in PyF cells resulted in strong inhibition of anchorage-independent growth in soft agar but had no significant effect on growth in liquid culture. Tumor formation in nude mice was also reduced by mutant PTP-S4. Expression of normal PTP-S4 in PyF cells significantly increased anchorage-independent cell growth and tumor formation in nude mice. Overexpression of catalytically inactive mutant of PTP-S2/TC45 (a splice variant of PTP-S4 that is nuclear) did not inhibit anchorage-independent growth of PyF cells. Mutant PTP-S4-expressing cells were inhibited in adhesion and spreading on tissue culture plates compared to control cells. Expression of mutant PTP-S4 in PyF cells reduced the levels of cyclin D1 and cyclin A mRNA, whereas cyclin D2 mRNA level was not affected significantly. Expression of antisense cyclin D1 strongly inhibited anchorage-independent growth. Inhibition of anchorage-independent growth by mutant PTP-S4 was overcome to a large extent by coexpression of cyclin D1. These results suggest that mutant PTP-S4 inhibits anchorage-independent growth and adhesion of polyoma virus-transformed cells by interfering with the normal function of PTP-S4 upstream of cyclin D1 gene expression.