SAP-1 (stomach cancer-associated protein-tyrosine phosphatase-1) is a transmembrane-type protein-tyrosine phosphatase that is abundant in the brain and certain cancer cell lines. With the use of a “substrate-trapping” approach, p130cas, a major focal adhesion-associated phosphotyrosyl protein, has now been identified as a likely physiological substrate of SAP-1. Expression of recombinant SAP-1 induced the dephosphorylation of p130cas as well as that of two other components of the integrin-signaling pathway (focal adhesion kinase and p62dok) in intact cells. In contrast, expression of a substrate-trapping mutant of SAP-1 induced the hyperphosphorylation of these proteins, indicating a dominant negative effect of this mutant. Overexpression of SAP-1 induced disruption of the actin-based cytoskeleton as well as inhibited various cellular responses promoted by integrin-mediated cell adhesion, including cell spreading on fibronectin, growth factor-induced activation of extracellular signal-regulated kinase 2, and colony formation. Finally, the enzymatic activity of SAP-1, measured with an immunocomplex phosphatase assay, was substantially increased by cell-cell adhesion. These results suggest that SAP-1, by mediating the dephosphorylation of focal adhesion-associated substrates, negatively regulates integrin-promoted signaling processes and, thus, may contribute to contact inhibition of cell growth and motility.