Protein tyrosine phosphatases (PTPs) are key regulators of cellular signalling through the control of cellular phosphotyrosine levels. The R2B family of receptor-like PTPs – PTPRK, PTPRU, PTPRM and PTPRT - are well placed on the plasma membrane at sites of cell-cell contact to influence cell adhesion. Despite clear physiological roles and dysregulation in disease states, the downstream signalling of these receptors is poorly defined. The R2B receptor PTPRU is unique in having significant divergence in key catalytic motifs in its membrane proximal (D1) PTP domain. PTPRU-D1 displayed no detectable catalytic activity against a diverse panel of phosphorylated substrates. The X-ray crystal structure of PTPRU-D1 showed this is due to several rearrangements in key catalytic motifs, which result in an occluded active site. PTPRU-D1 could not be easily reactivated by mutational analysis, suggesting multiple mechanisms contribute to inactivity, and that PTPRU has evolved to be a pseudophosphatase. Despite a lack of PTP activity, PTPRU retained the ability to bind substrates of its paralogs, suggesting that PTPRU influences signalling by competing with active phosphatases for substrate binding. Despite a lack of specificity at the peptide level, PTPs show marked substrate specificity in vivo. To define mechanisms of R2B PTP substrate specificity, the interaction of PTPRK with its substrate Afadin was investigated. This was found to be a direct interaction, with low-micromolar affinity, localised to a putative coiled coil domain in the Afadin C-terminus. This work provides evidence that substrate specificity of PTPRK is defined by protein interaction surfaces distinct from the enzyme active site. R2B receptor extracellular domains (ECDs) form trans homodimers at points of cell-cell contact. The crystal structure of the PTPRK-ECD minimal dimerisation unit revealed a similar dimer unit to that of the available PTPRM-ECD structure, with no clear molecular driver of homophilic specificity. A system for inducible cell-aggregation assays has been developed, which will allow future research into the homophilic specificity of R2B receptor ECDs.