Expression of CD45, the major transmembrane protein tyrosine phosphatase expressed on lymphoid cells, is required for optimal T cell receptor (TCR) signal transduction. We and others recently have demonstrated that surface expression of the cytoplasmic domain of CD45 in the absence of its extracellular and transmembrane domains is sufficient to restore TCR-mediated signaling events in CD45-deficient cell lines. Here we demonstrate that a single domain nonreceptor tyrosine phosphatase from yeast expressed as a chimeric protein with the extracellular and transmembrane domains of a major histocompatibility complex class I molecule also is able to restore proximal and distal TCR-mediated signal transduction events in the CD45- deficient T cell line J45.01. Ligation of the TCR on the cell line expressing the yeast phosphatase chimera results in the induction of protein tyrosine kinase activity, soluble inositol phosphate generation, and expression of the CD69 activation antigen. Furthermore, a phosphatase-inactive version of this molecule is unable to restore signal transduction, providing the first formal evidence that plasma membrane associated tyrosine phosphatase activity is required for TCR- mediated signaling.