Src kinase regulation of N-methyl-D-aspartate (NMDA) subtype glutamate receptors in the central nervous system (CNS) has been found to play an important role in processes related to learning and memory, ethanol sensitivity and epilepsy. However, little is known regarding the mechanisms underlying the regulation of Src family kinase activity in the control of NMDA receptors. Here we report that the distal phosphatase domain (D2) of protein tyrosine phosphatase alpha (PTPalpha) binds to the PDZ2 domain of post-synaptic density 95 (PSD95). Thus, Src kinase, its activator (PTPalpha) and substrate (NMDA receptors) are linked by the same scaffold protein, PSD95. Removal of PTPalpha does not affect the association of Src with NMDA receptors, but turns off the constitutive regulation of NMDA receptors by the kinase. Further more, we found that application of the PTPalpha catalytic domains (D1 + D2) into neurones enhances NMDA receptor-mediated synaptic responses. Conversely, the blockade of endogenous PTPalpha inhibits NMDA receptor activity and the induction of long-term potentiation in hippocampal neurones. Thus, PTPalpha is a novel up-regulator of synaptic strength in the CNS.