The mechanisms for substrate recognition by two cytoplasmic protein tyrosine phosphatases, PTP-5 and rrbPTP-1, were investigated. Phosphorylation sites on tyrosine-phosphorylated casein, a model PTP substrate, were characterized. Two peptides based on casein phosphorylation sites and one peptide based on the tyrosine phosphorylation site of reduced, carboxamidomethylated and maleylated (RCM) lysozyme were tested as PTP substrates. The three peptides were dephosphorylated by PTP-5 and rrbPTP-1 at rates comparable to those of the corresponding sites on the intact proteins. This indicates that peptides based on the two model PTP substrates, casein and RCM-lysozyme, contained all or most of the structural information necessary for PTP-5 and rrbPTP-1 substrate recognition. Structural elements required for substrate recognition by PTP-5 and rrbPTP-1 were also investigated. Km values for dephosphorylation of three simple aromatic phosphate esters (phosphotyrosine, p-nitrophenyl phosphate, and phenyl phosphate) by rrbPTP-1 were about 5000-fold higher than those obtained for the peptide and protein substrates. This indicates that recognition of protein and peptide substrates involves structural elements in addition to the phosphate group and the aromatic tyrosine ring of phosphotyrosine. Analysis of the effects of truncations and Ala for polar substitutions on the reactivity with PTP-5 and rrbPTP-1 of peptides based on casein, RCM-lysozyme, and angiotensin II indicated that Asp or Glu within the first five residues on the N-terminal side of phosphotyrosine increased peptide reactivity with both PTP's. Asn residues were unable or only weakly able to substitute for Asp residues. These results indicate that one or more acidic residues on the N-terminal side of phosphotyrosine enhance peptide reactivity with PTP-5 and rrbPTP-1 in an additive fashion.