ABSTRACT Fibroblast-like synoviocytes (FLS) are joint-lining non-hematopoietic cells that in rheumatoid arthritis (RA) contribute to local joint inflammation and damage. There is interest in discovering FLS-directed therapeutic agents that could be combined with current immunosuppressant disease-modifying anti-rheumatic agents (DMARDs). This renewal proposal focuses on understanding the mechanism of action and regulation of the tyrosine phosphatase PTPRS, which plays a critical role in FLS migration and invasion. In the first cycle of this grant, we have shown that PTPRS is an important regulator of FLS aggressiveness during RA and developed an approach to modulate PTPRS function in rheumatoid FLS. Our studies showed that on the surface of RA FLS, PTPRS is kept in an inactive state through specific binding to the heparan sulfate (HS)- proteoglycan syndecan-4 through a mechanism called the proteoglycan switch. Treatment of RA FLS with a decoy fragment of PTPRS encompassing its two most extracellular proteoglycan-binding immunoglobulin domains (called Ig1&2) causes detachment of PTPRS from syndecan-4. This leads to PTPRS-dependent inhibition of migration and invasiveness via dephosphorylation of the PTPRS substrate ezrin. In vivo administration of Ig1&2 reverses arthritis in multiple mouse models via a non-immunological mechanism. We also find that PTPRS expression is inhibited on RA FLS by tumor necrosis factor alpha, suggesting that PTPRS expression is regulated by joint inflammation. In the second cycle of the grant, we would like to deepen our knowledge of the mechanism of action and regulation of PTPRS in FLS and RA. Here we propose to a series of mechanistic studies in primary human FLS and mouse models of RA aimed at understanding the regulation of PTPRS expression in RA FLS (Aims 1) and how Ig1&2 and PTPRS regulate FLS-induced inflammation in arthritis (Aim 2). We will also use biochemical, structural, and cellular biology approaches to understand the key molecular determinants for PTPRS regulation by syndecan-4 (Aim 3). Our long-term goal remains to understand the biology of PTPRS in RA FLS, which will help to complete the validation of the PTPRS-regulated pathway as a therapeutic target for RA.