The receptor protein-tyrosine phosphatase PTPmu is a member of the Ig superfamily of cell adhesion molecules. The extracellular domain of PTPmu contains motifs commonly found in cell adhesion molecules. The intracellular domain of PTPmu contains two conserved catalytic domains, only the membrane-proximal domain has catalytic activity. The unique features of PTPmu make it an attractive molecule to transduce signals upon cell-cell contact. PTPmu has been shown to regulate cadherin-mediated cell adhesion, neurite outgrowth, and axon guidance. Protein kinase C is a component of the PTPmu signaling pathway utilized to regulate these events. To aid in the further characterization of PTPmu signaling pathways, we used a series of GST-PTPmu fusion proteins, including catalytically inactive and substrate trapping mutants, to identify PTPmu-interacting proteins. We identified IQGAP1, a known regulator of the Rho GTPases, Cdc42 and Rac1, as a novel PTPmu-interacting protein. We show that this interaction is due to direct binding. In addition, we demonstrate that amino acid residues 765-958 of PTPmu, which include the juxtamembrane domain and 35 residues of the first phosphatase domain, mediate the binding to IQGAP1. Furthermore, we demonstrate that constitutively active Cdc42, and to a lesser extent Rac1, enhances the interaction of PTPmu and IQGAP1. These data indicate PTPmu may regulate Rho-GTPase-dependent functions of IQGAP1 and suggest that IQGAP1 is a component of the PTPmu signaling pathway. In support of this, we show that a peptide that competes IQGAP1 binding to Rho GTPases blocks PTPmu-mediated neurite outgrowth.