We recently discovered that a single-nucleotide polymorphism (SNP) in the lymphoid tyrosine phosphatase (LYP), encoded by the PTPN22 gene on chromosome 1p13, correlates strongly with the incidence of type 1 diabetes (T1D) in two independent populations. This findings has now been verified by numerous studies and it has been expanded to rheumatoid arthritis, juvenile rheumatoid arthritis, systemic lupus erythematosus, Graves' disease, generalized vitiligo and other autoimmune disease. Here we review the genetics of the SNP and its association with autoimmunity, discuss the function of the phosphatase in signaling, the biochemistry of the disease-predisposing allele, and the possible mechanisms by which PTPN22 contributes to the development of human disease.