Sterol regulatory element-binding protein-1 (SREBP-1) is a key transcription factor in stimulating lipogenesis in the liver. Protein-tyrosine phosphatase 1B (PTP1B) induces SREBP-I gene expression via protein phosphatase 2A (PP2A) activation. PTP1B is reported to be anchored on the endoplasmic reticulum (ER) via its C-terminal tail, and change in intracellular localization of PTP1B by C-terminal-truncation did not alter its inhibitory effects on insulin signaling. In this study, we investigated whether the change in intracellular localization of PTP1B could influence SREBP-1 gene expression. Overexpression of C-terminal truncated PTP1B (PTP1BACT) in rat Fao cells did not induce SREBP-1 gene expression. Furthermore, PTP1B Delta CT failed to bind PP2A, resulting in impaired PP2A activation, whereas overexpression of wild-type PTP1B (PTP1BWT) associated with PP2A. Moreover, a membrane-targeted PTP1B Delta CT activated PP2A with restored PP2A binding, despite the absence of its C-terminal region. Finally, overexpression of PTP1B Delta CT into mouse primary cultured hepatocytes failed to enhance SREBP-1c mRNA, whereas membrane-targeted PTP1B Delta CT led to enhanced SREBP-1c mRNA in hepatocytes as well as PTP1BWT. In conclusion, membrane localization of PTP1B is essential for PP2A activation, which is crucial for its enhancement of SREBP-I gene expression. (C) 2007 Elsevier Inc. All rights reserved.