The phosphatase of regenerating liver-1, PRL-1, gene was detected in a screen for foveal cone photoreceptor-associated genes. It encodes a small protein tyrosine phosphatase that was previously immunolocalized to the photoreceptors in primate retina. Here we report that in cones and cone-derived cultured cells both PRL-1 activity and PRL-1 gene expression are modulated under oxidative stress. Oxidation reversibly inhibited the phosphatase activity of PRL-1 due to the formation of an intramolecular disulfide bridge between Cys104 within the active site and another conserved Cys, Cys49. This modulation was observed in vitro, in cell culture and in isolated retinas exposed to hydrogen peroxide. The same treatment caused a rapid increase in PRL-1 expression levels in cultured cells which could be blocked by the protein translation inhibitor, cycloheximide. Increased PRL-1 expression was also observed in living rats subjected to constant light exposure inducing photooxidative stress. We further demonstrated that both oxidation and overexpression of PRL-1 upon oxidative stress are greatly enhanced by inhibition of the glutathione system responsible for cellular redox regulation. These findings suggest that PRL-1 is a molecular component of the photoreceptor's response to oxidative stress acting upstream of the glutathione system.