The formation of phosphoryl-enzyme intermediates is an essential component of numerous enzymatic mechanisms that involve phosphoryl-transfer reactions, for example the dephosphorylation of Tyr(P) residues catalyzed by protein-tyrosine phosphatases (1). PTPs 1 together with the protein-tyrosine kinases, which catalyze the opposing tyrosine phosphorylation reaction, control the overall levels of cellular tyrosine phosphorylation, and the molecular basis of the regulation and substrate specificity of these enzymes is subject to much investigation (2, 3). Reversible tyrosine phosphorylation is essential to the signal transduction pathways triggered by hormones, mitogens, and oncogenes that regulate such processes as cell growth, differentiation, and proliferation. The PTPs are a diverse family of enzymes that comprise transmembrane receptor-like PTPs (RPTPs) and soluble cytosolic proteins. The catalytic domains of the PTPs are highly conserved, consisting of ϳ250 amino acids and are characterized by an 11-residue PTP signature motif, (I/V)HCXAGXXR(S/T)G, containing the Cys and Arg residues that are essential for catalysis (4, 5). Diversity within the family is generated by the nature of the noncatalytic segments attached to the N and C termini of the PTP domains, which provide regulatory and subcellular targeting functions. Additional diversity is generated within the RPTPs, which frequently possess tandem PTP domains, although for some RPTPs such as CD45, the C-terminal PTP domain lacks catalytic activity (3). The dual specificity phosphatases (DSPs) are related to the PTPs by their possession of the PTP signature motif and related tertiary structure and catalytic mechanism (1, 6).Insights into the catalytic mechanism of PTPs and DSPs have been obtained from structural and kinetic studies of these enzymes (1, 4, 5). A PTP1B-phosphotyrosine peptide complex revealed that the Tyr(P) residue of the peptide is buried within a deep catalytic site cleft present on the protein's molecular surface. The base of the catalytic site is formed by residues of the PTP signature motif with the phosphate group of Tyr(P) being coordinated by main-chain amide groups and the Arg side chain of this motif, such that the phosphorus atom is situated adjacent to the S␥ atom of the catalytic Cys residue (7). Four other loops bearing invariant residues form the sides of the catalytic cleft and contribute to catalysis and substrate recognition. Engagement of phosphopeptides by PTP1B promotes a major conformational change of one of these loops (the WPD loop) consisting of residues 179 -187 that shift by as much as 8 Å to close over the phenyl ring of Tyr(P) and allow the side chain of Asp-181 to act as a general acid in the catalytic reaction. The Arg-221 side chain reorients to optimize salt bridge interactions with the phosphate bound to the catalytic site. This shift is coupled to motion of the WPD loop via a hydrogen bond between NH 2 of Arg-221 and the carbonyl oxygen of Pro-180 and hydrophobic interactions between the aliphatic moiety of ...