This report describes the identification and characterization of a novel cytoplasmic isoform of human protein tyrosine phosphatase epsilon (PTPepsilon). The novel isoform, denoted cyt-PTPepsilonPD1, displays only the N-terminal catalytic, active phosphatase domain 1 (PD1) which is common in all known PTPepsilon isoforms. In addition, it contains a unique 132-residue long C-terminal end with no known motifs or homology to other characterized proteins. RNAse protection assay on isolated leucocyte subpopulations and selected cell lines demonstrated highest expression of cyt-PTPepsilonPD1 in monocytes. The mRNA-encoding cyt-PTPepsilonPD1 is detected as distinct transcript(s) by Northern blot analysis and is a result of alternative splicing. cyt-PTPepsilonPD1 shows similar cellular localization in transfected cells, both in the cytoplasm and nucleus, as has been previously described for cytoplasmic PTPepsilon isoform. Our previous data suggest that the expression of cytoplasmic PTPepsilon inhibits the mitogen-activated protein kinase cascade through the extracellular signal-regulated kinase 1 and 2 pathway. A similar functional role is also presented here for cyt-PTPepsilonPD1, supporting our previous data suggesting that the catalytic first PD of PTPepsilon is responsible for this inhibition.