The cellular form of human prostatic acid phosphatase (PAcP) is a neutral protein-tyrosine phosphatase (PTP) and may play a key role in regulating the growth and androgen responsiveness of prostate cancer cells. The functional role of the enzyme is at least due in part to its dephosphorylation of c-ErbB-2, an in vivo substrate of the enzyme. In this study, we investigated the molecular mechanism of phosphotyrosine dephosphorylation by cellular PAcP. We mutated several amino acid residues including one cysteine residue that was proposed to be involved in the PTP activity of the enzyme by serving as the phosphate acceptor. The cDNA constructs of mutant enzymes were transiently transfected into C-81 LNCaP and PC-3 human prostate cancer cells that lack the endogenous PAcP expression. The phosphotyrosine level of ErbB-2 in these transfected cells was subsequently analyzed. Our results demonstrated that the phosphotyrosine level of ErbB-2 in cells expressing H12A or D258A mutant PAcP is similar to that in control cells without PAcP expression, suggesting that these mutants are incapable of dephosphorylating ErbB-2. In contrast, cells expressing C183A, C281A, or wild-type PAcP had a decreased phosphotyrosine level of ErbB-2, compared with the control cells. Similar results were obtained from in vitro dephosphorylation of immunoprecipitated ErbB-2 by these mutant enzymes. Furthermore, transient expression of C183A, C281A, or the wild-type enzyme, but not H12A or D258A, decreased the growth rate of C-81 LNCaP cells. The data collectively indicate that His-12 and Asp-258, but not Cys-183 or Cys-281, are required for the PTP activity of PAcP.