PTP-FERM is a protein tyrosine phosphatase (PTP) of Caenorhabditis elegans containing a FERM domain and a PDZ domain. Here we report the characterization of PTP-FERM and the essential role of its FERM domain in the localization of PTP-FERM in the worm. There are at least three alternatively spliced PTP-FERM isoforms, all of which contain a band 4.1/FERM domain, a PDZ domain, and a catalytic domain. PTP-FERM possessed phosphatase activity. PTP-FERM was expressed predominantly in neurons in the nerve ring and the ventral nerve cord. PTP-FERM was found in the nerve processes and to be enriched in the peri-membrane region. Studies using various deletion mutants revealed that the FERM domain was essential and sufficient for the subcellular localization. These results suggest the essential role of the FERM domain in the function of PTP-FERM in the neurons of C. elegans.