Though the majority of non-small-cell lung cancers involve overexpression of EGFR, significant clinical response to EGFR kinase inhibitors such as gefitinib and erlotinib is limited mostly to tumors expressing one of a set of recently identified EGFR mutants. Key functional differences in EGFR mutant-expressing lung cancer cells compared to WT EGFR cells are that they demonstrate prolonged receptor activation, decreased receptor IC50, altered downstream signaling dynamics, and increased apoptotic response to inhibitor. We previously demonstrated that the altered signaling dynamics observed may in part be the result of markedly decreased rates of EGFR endocytosis in mutant EGFR-bearing cells. Here, we show that differences in signaling dynamics and cellular sensitivity in mutant EGFR-bearing cells may also be explained by differential activity of phosphatases acting at the level of the receptor itself as well as downstream signaling intermediates affecting the activation of Erk and Akt. In lung cancer lines with EGFR mutations, we observed differential deactivation of the receptor itself at a key tyrosine residue in response to administration of kinase inhibitor, suggesting that this tyrosine may be an important mediator of the differential effects of the mutant receptor. In mutant-expressing cells, we also observed aberrant phosphorylation of an intracellular phosphatase known to be involved in signal transduction through the Erk and Akt pathways in response to stimulation with EGF, suggesting that this phosphatase may be improperly activated in these cells. Consistent with this notion, we further demonstrated that phosphatase siRNA knockdown diminished Erk phosphorylation in response to EGF stimulation in human WT EGFR lung cancer lines but had virtually no effect in mutant lines. Moreover, lung cancer lines with WT EGFR were more sensitive to treatment with gefitinib after phosphatase siRNA knockdown, demonstrating a role for this protein in the normal propagation of pro-survival signals in WT EGFR lung cancer cells which may be compromised in lung cancers bearing mutant EGFR. These results indicate that differential phosphatase activity in mutant EGFR lung cancer lines represents an important component of the increased sensitivity of these cells to gefitinib.