Protein tyrosine kinases and phosphatases cooperate to regulate normal immune cell function. We examined the role of PEST domain - enriched tyrosine phosphatase ( PEP) in regulating T cell antigen - receptor function during thymocyte development and peripheral T cell differentiation. Although normal naive T cell functions were retained in pep-deficient mice, effector/memory T cells demonstrated enhanced activation of Lck. In turn, this resulted in increased expansion and function of the effector/memory T cell pool, which was also associated with spontaneous development of germinal centers and elevated serum antibody levels. These results revealed a central role for PEP in negatively regulating specific aspects of T cell development and function.