The JAK-STAT signalling pathway plays an important role in the maintenance of the haematopoietic and immune systems. Binding of a cytokine to its receptor triggers a wave of tyrosine phosphorylation within the cell driven primarily by the Janus Kinase (JAK) proteins. These phosphate groups act generally as activating marks within the pathway and so removal of the phosphate groups has the opposite effect, inactivating the pathway. Protein tyrosine phosphatase 1B (PTP1B) is a negative regulator of the JAK-STAT signalling pathway, and functions by directly removing the phosphate groups from tyrosine residues on the activated JAK and STAT proteins. While the action of PTP1B has been studied for other kinases such as the insulin receptor kinase, no studies have been detailed the mechanism by which PTP1B interacts with the JAK proteins of the JAK-STAT pathway. In this study we sought to investigate how PTP1B interacts with the JAK proteins using structural and biochemical studies. We have determined the co-crystal structures of the PTP1B phosphate domain in complex with activation loop peptides from the four JAK proteins. These structures suggest that the second phosphotyrosine of the activation loop is the preferred substrate for the PTP1B catalytic site. Data generated by NMR and biochemical studies further supported this preference for the second phosphotyrosine. Our findings provide useful information regarding the mechanism of ligand recognition and dephosphorylation by PTP1B and further our understanding of the regulation of the JAK-STAT signalling pathway by phosphatases such as PTP1B.