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The receptor protein tyrosine phosphatase (PTPase) Dlar has an ectodomain consisting of three immunoglobulin (Ig)-like domains and nine fibronectin type III (FnIII) repeats and a cytoplasmic domain consisting of two PTPase domains, membrane-proximal PTP-D1 and C-terminal PTP-D2. A series of mutant Dlar transgenes were introduced into the Drosophila genome via P-element transformation and were then assayed for their capacity to rescue phenotypes caused by homozygous loss-of-function genotypes. The Ig-like domains, but not the FnIII domains, are essential for survival. Conversely, the FnIII domains, but not the Ig-like domains, are required during oogenesis, suggesting that different domains of the Dlar ectodomain are involved in distinct functions during Drosophila development. All detectable PTPase activity maps to PTP-D1 in vitro. The catalytically inactive mutants of Dlar were able to rescue Dlar -/- lethality nearly as efficiently as wild-type Dlar transgenes, while this ability was impaired in the PTP-D2 deletion mutants DlarΔPTP-D2 and Dlarbypass. Dlar-C1929S, in which PTP-D2 has been inactivated, increases the frequency of bypass phenotype observed in Dlar-/- genotypes, but only if PTP-D1 is catalytically active in the transgene. These results indicate multiple roles for PTP-D2, perhaps by acting as a docking domain for downstream elements and as a regulator of PTP-D1.