RPTPmu is a prototypic receptor-like protein-tyrosine phosphatase (RPTP) that mediates homotypic cell-cell interactions. Intracellularly, RPTPmu consists of a relatively large juxtamembrane region and two phosphatase domains, but little is still known about its substrate(s). Here we show that RPTPmu associates with the catenin p120(ctn), a tyrosine kinase substrate and an interacting partner of cadherins. No interaction is detectable between RPTPmu and beta-catenin. Furthermore, we show that tyrosine-phosphorylated p120(ctn) is dephosphorylated by RPTPmu both in vitro and in intact cells. Complex formation between RPTPmu and p120(ctn) does not require tyrosine phosphorylation of p120(ctn). Mutational analysis reveals that both the juxtamembrane region and the second phosphatase domain of RPTPmu are involved in p120(ctn) binding. The RPTPmu-interacting domain of p120(ctn) maps to its unique N terminus, a region distinct from the cadherin-interacting domain. A mutant form of p120(ctn) that fails to bind cadherins can still associate with RPTPmu. Our findings indicate that RPTPmu interacts with p120(ctn) independently of cadherins, and they suggest that this interaction may serve to control the tyrosine phosphorylation state of p120(ctn) at sites of cell-cell contact.