Vascular endothelial growth factor (VEGF) binding induces phosphorylation of VEGF receptor (VEGFR)2 in tyrosine, which is followed by disruption of VE-cadherin-mediated cell-cell contacts of endothelial cells (ECs), thereby stimulating EC proliferation and migration to promote angiogenesis. Tyrosine phosphorylation events are controlled by the balance of activation of protein tyrosine kinases and protein tyrosine phosphatases (PTPs). Little is known about the role of endogenous PTPs in VEGF signaling in ECs. In this study, we found that PTP1B expression and activity are markedly increased in mice hindlimb ischemia model of angiogenesis. In ECs, overexpression of PTP1B, but not catalytically inactive mutant PTP1B-C/S, inhibits VEGF-induced phosphorylation of VEGFR2 and extracellular signal-regulated kinase 1/2, as well as EC proliferation, whereas knockdown of PTP1B by small interfering RNA enhances these responses, suggesting that PTP1B negatively regulates VEGFR2 signaling in ECs. VEGF-induced p38 mitogen-activated protein kinase phosphorylation and EC migration are not affected by PTP1B overexpression or knockdown. In vivo dephosphorylation and cotransfection assays reveal that PTP1B binds to VEGFR2 cytoplasmic domain in vivo and directly dephosphorylates activated VEGFR2 immunoprecipitates from human umbilical vein endothelial cells. Overexpression of PTP1B stabilizes VE-cadherin-mediated cell-cell adhesions by reducing VE-cadherin tyrosine phosphorylation, whereas PTP1B small interfering RNA causes opposite effects with increasing endothelial permeability, as measured by transendothelial electric resistance. In summary, PTP1B negatively regulates VEGFR2 receptor activation via binding to the VEGFR2, as well as stabilizes cell-cell adhesions through reducing tyrosine phosphorylation of VE-cadherin. Induction of PTP1B by hindlimb ischemia may represent an important counterregulatory mechanism that blunts overactivation of VEGFR2 during angiogenesis in vivo.