Regulation of N-methyl-d-aspartate (NMDA) receptors is critical for the normal functioning of the central nervous system. There must be precise mechanisms to allow for changes in receptor function required for learning and normal synaptic transmission, but within tight constraints to prevent pathology. Tyrosine phosphorylation is a major means by which NMDA receptors are regulated through the equilibrium between activity of Src family kinases and tyrosine phosphatases. Identification of NMDA receptor phosphatases has been difficult, the best candidate being striatal-enriched tyrosine phosphatase (STEP). Here we demonstrate that STEP is a critical regulator of NMDA receptors and reveal that the action of this tyrosine phosphatase controls the constitutive trafficking of NMDA receptors and leads to changes in NMDA receptor activity at the neuronal surface. We show that STEP binds directly to NMDA receptors in the absence of other synaptic proteins. The activity of STEP selectively affects the expression of NMDA receptors at the neuronal plasma membrane. The result of STEP's action upon the NMDA receptor affects the functional properties of the receptor and its downstream signaling. These effects are evident when STEP levels are chronically reduced, indicating that there is no redundancy amongst phosphatases to compensate for altered STEP function in the CNS. STEP may have evolved specifically to fill a pivotal role as the NMDA receptor phosphatase, having a distinct and restricted localization and compartmentalization, and unique activity towards the NMDA receptor and its signaling pathway.