We have used a keratinocyte in vivo/in vitro cell model to test the hypothesis that hydrogen peroxide acts as a signaling molecule, contributing to proliferation and tumorigenesis. A cell line, 6M90, that produces squamous cell carcinoma (SCC), has high levels of ROS and low levels of catalase. A new cell line, MTOC2, generated from parental 6M90 cells by introduction of a Tet-responsive catalase transgene, effectively expressed higher peroxisomal catalase. Increased catalase expression diminished constitutive ROS and enhanced viability after treatment with hydrogen peroxide. Protein tyrosine phosphatase activity was higher in the MTOC2 cells with high catalase, consistent with detection of a lower level of phosphorylation at tyrosine 1068 of the epidermal growth factor receptor (EGF-R). Transcription of downstream c-fos, AP-1 transactivation and cell proliferation were higher in the low catalase cells. An EGF-R inhibitor, AG1478, blocks the higher AP-1 transactivation and cell proliferation of the low catalase 6M90 cells. Tumorigenesis in SCID mice was greatly diminished in the high catalase cells. Our data suggest that hydrogen peroxide functions as a signaling molecule that can modulate activity of a protein tyrosine phosphatase/(s) resulting in phosphorylation of tryrosine/(s) on the EGF-R. Therefore, catalase acts as a tumor-suppressor gene in part by decreasing EGF-R signaling.