In Drosophila, a number of cellular processes including proliferation and differentiation are regulated by protein tyrosine phosphatases (PTPs). However, to date the mechanisms by which PTPs regulate the developmental processes remain elusive especially in the case of receptor PTPs (RPTPs) which are involved in the regulation of axon guidance and synaptogenesis decisions in Drosophila embryos and larvae. To reveal the other potential functions we utilized systematic data mining approaches focusing on RPTP expression profiles during critical stages of development. This lead to the identification of a highly midgut enriched RPTP-the PTP52F especially in the larva-pupa transition during which the ecdysone action kicks in. Results from real-time PCR and cell based experiments confirmed RPTP52F as an ecdysone response gene. Genetic studies showed a critical role of PTP52F in midgut metamorphosis during larva pupa transition. Using a substrate-trapping strategy we identified, transitional endoplasmic reticulum ATPase94 (TER94), ortholog of human Valosin Containing Protein (VCP) as a bonafide substrate of PTP52F. Interestingly, tyrosine 800 of TER94 which is phosphorylated by Src kinase is targeted and dephosphorylated by PTP52F. We showed that PTP52F mediated dephosphorylation of TER94 could facilitate the ubiquitin mediated degradation of various proteins including Drosophila inhibitor of apoptosis1 (DIAP1) a key regulator controlling midgut cell death. In vivo evidences demonstrated that the forced expression of TER94 rescued the defect of midgut metamorphosis induced by knockdown of PTP52F, suggesting the importance of coordinated action between PTP52F and TER94. Our studies for the first time reveal a novel regulatory role of a RPTP that contributes to proper tissue organization of midgut formation in Drosophila metamorphosis.