We have exploited reconstitution in the fission yeast Schizosaccharomyces pombe to investigate how activation of phospholipase Cgamma (PLCgamma) by the platelet-derived growth factor-beta receptor (PDGFbetaR) is regulated by the SH2 domain-containing protein tyrosine phosphatase PTP2C (also known as SHP-2). When co-expressed in S. pombe, PTP2C abolished PDGFbetaR autophosphorylation as well as its ability to phosphorylate and activate PLCgamma. Inhibition of PDGFbetaR signalling by PTP2C appears specific insofar that PTPIC, a close homologue of PTP2C, does not suppress activation of either PDGFbetaR or PLCgamma. Surprisingly, an inactive PTP2C mutant (C459S), which dephosphorylates neither PDGFbetaR nor PLCgamma, remains fully effective as an inhibitor of [3H]inositol phosphate generation indicating that negative regulation is at least in part independent of catalytic activity. This contrasts with PLCgamma activation by c-Src which, although blocked by active PTP2C, is not inhibited by the mutant PTP2C C459S. These observations indicate that in addition to a reported positive role relaying trophic signals, PTP2C can also exert a negative effect on the PDGFbetaR and its signalling to PLCgamma.