Molecular dynamics simulation of the Michaelis complex, phospho-enzyme intermediate, and the wild-type and C12S mutant have been carried out to examine hydrogen-bonding interactions in the active site of the bovine low molecular weight protein-tyrosine phosphatase (BPTP). It was found that the S γ atom of the nucleophilic residue Cys-12 is ideally located at a position opposite from the phenylphosphate dianion for an inline nucleophilic substitution reaction. In addition, electrostatic and hydrogen-bonding interactions from the backbone amide groups of the phosphate-binding loop strongly stabilize the thiolate anion, making Cys-12 ionized in the active site. In the phospho-enzyme intermediate, three water molecules are found to form strong hydrogen bonds with the phosphate group. In addition, another water molecule can be identified to form bridging hydrogen bonds between the phosphate group and Asp-129, which may act as the nucleophile in the subsequent phosphate hydrolysis reaction, with Asp-129 serving as a general base. The structural difference at the active site between the wild-type and C12S mutant has been examined. It was found that the alkoxide anion is significantly shifted toward one side of the phosphate binding loop, away from the optimal position enjoyed by the thiolate anion of the wild-type enzyme in an S N 2 process. This, coupled with the high pK a value of an alcoholic residue, makes the C12S mutant catalytically inactive. These molecular dynamics simulations provided details of hydrogen bonding interactions in the active site of BPTP, and a structural basis for further studies using combined quantum mechanical and molecular mechanical potential to model the entire dephosphorylation reaction by BPTP.