Signaling pathways involving reversible tyrosine phosphorylation are essential for neutrophil antimicrobial responses. Using reverse transcriptase PCR, expression of the protein-tyrosine phosphatase MEG2 by peripheral neutrophilic polymorphonuclear leukocytes (PMN) was identified. Polyclonal antibodies against MEG2 were developed that confirmed expression of MEG2 protein by PMN. Through a combination of immunofluorescence and cell fractionation followed by immunoblotting, we determined that MEG2 is predominantly cytosolic with components present in secondary and tertiary granules and secretory vesicles. MEG2 activity, as determined by immunoprecipitation and in vitro phosphatase assays, is inhibited after exposure of cells to the particulate stimulant opsonized zymosan or to phorbol 12-myristate 13-acetate but largely unaffected by the chemoattractant N-formyl-methionyl-leucyl-phenyalanine. Studies using bacterially expressed glutathione S-transferase MEG2 fusion protein indicate that cysteine 515 is essential for catalytic activity, whereas the noncatalytic (N-terminal) domain of MEG2 negatively regulates the enzymatic activity of the C-terminal phosphatase domain. The activity of MEG2 is enhanced by specific polyphosphoinositides with the order of potency being phosphatidylinositol (PI) 4,5-diphosphate > PI 3,4,5-triphosphate > PI 4-phosphate. MEG2 associates at an early stage with nascent phagosomes. Taken together, our results indicate that MEG2 is a polyphosphoinositide-activated tyrosine phosphatase that may be involved in signaling events regulating phagocytosis, an essential antimicrobial function in the innate immune response.