Protein-tyrosine phosphatase (PTP)-PEST is a cytoplasmic tyrosine phosphatase that can bind and dephosphorylate the focal adhesion-associated proteins p130(CAS) and paxillin. Focal adhesion kinase (FAK) and cell adhesion kinase beta (CAKbeta)/PYK2/CADTK/RAFTK are protein-tyrosine kinases that can colocalize with, bind to, and induce tyrosine phosphorylation of p130(CAS) and paxillin. Thus, we considered the possibility that these kinases might be substrates for PTP-PEST. Using a combination of substrate-trapping assays and overexpression of PTP-PEST in mammalian cells, CAKbeta was found to be a substrate for PTP-PEST. Both the major autophosphorylation site of CAKbeta (Tyr(402)) and activation loop tyrosine residues, Tyr(579) and Tyr(580), were targeted for dephosphorylation by PTP-PEST. Dephosphorylation of CAKbeta by PTP-PEST dramatically inhibited CAKbeta kinase activity. In contrast, FAK was a poor substrate for PTP-PEST, and treatment with PTP-PEST had no effect on FAK kinase activity. Tyrosine phosphorylation of paxillin, which is greatly enhanced by CAKbeta overexpression, was dramatically reduced upon coexpression of PTP-PEST. Finally, endogenous PTP-PEST and endogenous CAKbeta were found to localize to similar cellular compartments in epithelial and smooth muscle cells. These results suggest that CAKbeta is a substrate of PTP-PEST and that FAK is a poor PTP-PEST substrate. Further, PTP-PEST can negatively regulate CAKbeta signaling by inhibiting the catalytic activity of the kinase.