Background Phosphatase of regenerating liver-3 (PRL-3 or PTP4A3) has been implicated in controlling cancer cell proliferation, motility, metastasis, and angiogenesis. Deregulated expression of PRL-3 is highly correlated with cancer progression and predicts poor survival. Although PRL-3 was categorized as a tyrosine phosphatase, its cellular substrates remain largely unknown. Results We demonstrated that PRL-3 interacts with integrin β1 in cancer cells. Recombinant PRL-3 associates with the intracellular domain of integrin β1 in vitro. Silencing of integrin α1 enhances PRL-3-integrin β1 interaction. Furthermore, PRL-3 diminishes tyrosine phosphorylation of integrin β1 in vitro and in vivo. With site-specific anti-phosphotyrosine antibodies against residues in the intracellular domain of integrin β1, tyrosine-783, but not tyrosine-795, is shown to be dephosphorylated by PRL-3 in a catalytic activity-dependant manner. Phosphorylation of Y783 is potentiated by ablation of PRL-3 or by treatment with a chemical inhibitor of PRL-3. Conversely, depletion of integrin α1 decreases the phosphorylation of this site. Conclusions Our results revealed a direct interaction between PRL-3 and integrin β1 and characterized Y783 of integrin β1 as a bona fide substrate of PRL-3, which is negatively regulated by integrin α1.