These studies reveal that the entire phosphatase activity in the two proteins is localized to their D1 domains. The presence of the D2 domains, however, leads to a change in their catalytic activity. Phosphatase activity, monitored using both pNPP and the phosphotyrosine peptide substrates, reveal that the D2 domain of DLAR has an inhibitory effect on its D1 domain while the D2 domain of PTP99A enhances the activity of its D1 domain. Substrate recognition features were also substantially influenced by the presence of the D2 domain in both cases. In the DLAR D1D2 construct, when the most preferred substrate of the D1 domain is sequestered by the D2 domain, the Cuticle peptide is preferentially de-phosphorylated. This perhaps explains the observation that D2 deletion constructs are significantly impaired in phenotypic rescue of the embryos . The deletion of the D2 domain would impart the D1 domain of DLAR with much higher activity, but would alter its substrate recognition pattern leading to its inability to regulate signaling pathways. The biochemical data also reveals that the substrate recognition by the DLAR D1D2HSS construct is similar to the wild type DLAR D1D2 protein. This suggests that while the active site cysteine of the D2 domain is important for peptide binding, it does not dictate the target sequence recognition of the PTP domain. This observation is consistent with the finding that neuronal phenotypes of DLAR knock-outs could be rescued by the C1929S transgene of DLAR with comparable efficiency to that of the wild type DLAR in Drosophila embryos . The D2 domain of PTP99A, while structurally conserved, has critical mutations in motifs 9 and 10 suggesting a loss of catalytic activity . The active site Cys of this PTP domain is substituted by an Asp, which has been previously shown to be capable of substrate binding, but is deficient in catalysis . A point Lapatinib mutation of this asp to Cys alone could not activate the D2 domain of PTP99A suggesting that the presence of other motifs is crucial for catalytic activity in this class of proteins . Interestingly, PTP99A is the only type III RPTP with a membrane distal D2 domain . Electrostatic potentials at the surface of the PTP99A D2 domain highlight the negative charges, which are quite uncommon in the phosphotyrosine binding pocket of the PTP domains .