Phosphotyrosine phosphatases (PTPases) regulate cellular metabolic activation by reversing the effects of tyrosine kinases activated earlier in intracellular signaling pathways. We coupled fluorescence-activated cell sorter analysis using anti-CD45 monoclonal antibody with direct measurements of enzyme activity in resolved subcellular fractions to define mechanisms that potentially regulate the availability and activity of CD45-PTPase on neutrophil plasma membranes. Neutrophils in freshly obtained blood as well as neutrophils freshly isolated from blood were found to possess detectable levels of plasma membrane CD45 as assessed by immunofluorescence. However, plasma membranes from these cells were essentially devoid of PTPase catalytic activity, which was largely confined to the specific granules. Granulocyte-macrophage colony-stimulating factor (GM-CSF) upregulated both the catalytic and antigenic components of CD45-PTPase on the plasma membrane of these cells. Upregulation was associated with a shift in the particulate subcellular PTPase catalytic activity from the specific granule fraction to the plasma membrane fraction. The tyrosine kinase inhibitor genistein abrogated GM-CSF-promoted upregulation of plasma membrane CD45 PTPase but did not prevent the GM-CSF-dependent decrease in specific granule catalytic activity. Anti-CD45 antibody immunoprecipitated PTPase activity from both specific granules of resting cells and plasma membranes of GM-CSF-treated cells. However, antiphosphotyrosine immunoprecipitated only activity that had translocated to the plasma membrane, suggesting a role for CD45 phosphorylation in translocation. Western analysis confirmed the tyrosine phosphorylation of CD45 in plasma membranes of GM-CSF-treated neutrophils. Preincubation of plasma membranes of GM-CSF-stimulated neutrophils with cytosol from resting cells resulted in a time- and temperature-dependent loss in membrane PTPase as a consequence of the effects of a cytosolic inactivator. Cytosol obtained from stimulated neutrophils possessed substantially reduced levels of this PTPase inactivator. We conclude that activity of the catalytic component of membrane PTPase in circulating neutrophils is regulated by a cytosolic inactivator. Upon stimulation, intact CD45 PTPase is incorporated into the plasma membrane by a process that requires tyrosine phosphorylation. As a result of inhibition of the cytosolic inactivator, the translocated PTPase expresses full activity, thereby amplifying the potential regulatory influence of the enzyme on the cells' functional response.