The protein tyrosine phosphatases (PTPs) are a large family of enzymes responsible for intracellular dephosphorylation. Together with protein tyrosine kinases (PTKs), PTPs control the level of protein phosphorylation, which modulates numerous aspects of cell life, such as growth, proliferation, metabolism, intercellular interaction, immune responses, and gene transcription (1). PTPs contain a highly conserved HCXXGXXRS/T signature sequence motif but share very little sequence similarities outside of the conserved regions, which are comprised of the phosphate binding loop (P-loop); the general acid loop, often referred to as the WPD-loop; and the Q-loop that bears conserved glutamine residues that orient the water nucleophile in classical PTPs and prevent phosphotransferase activity to other potential nucleophiles. All PTPs utilize a two-step double-displacement mechanism of phosphate monoester hydrolysis (Scheme 1) mediated by an invariant cysteine-arginine-aspartic acid triad of catalytic residues (2). The mechanism proceeds through a phosphoenzyme intermediate where the second chemical step is often rate limiting (3). In the first step the P-loop orients the substrate as the nucleophilic cysteine attacks phosphorus with simultaneous expulsion of the leaving group protonated by the catalytic general acid. In the second step a water molecule, directed by the aspartic acid residue that served as the general acid in the first step and Q-loop glutamine residues, attacks the phosphoenzyme intermediate. Scheme 1 Top, the chemical steps in the reaction catalyzed by PTPs. In the first chemical step a nucleophilic cysteine attacks the phosphate ester with simultaneous protonation of the leaving group by the conserved aspartic acid. In the second chemical step water ... The PTP family is subdivided into several groups based on substrate specificity, subcellular localization, and size. The classical PTP family selectively hydrolyzes phosphotyrosine containing peptides, and includes the well-studied bacterial effector protein YopH, responsible for the virulence of notorious Y.pestis, and human PTP1B, which plays an important role in insulin signaling (4). Classical PTPs have a modular organization and, in addition to the catalytic phosphatase domain, contain non-catalytic domains that control subcellular localization and protein-substrate interactions. All classical PTPs are tyrosine specific enzymes. The members of the dual-specificity phosphatases (DSPs) subfamily hydrolyze phosphoserine and phosphothreonine in addition to phosphotyrosine containing target sites. Within the DSP subfamily, the atypical DSPs are smaller and contain only a catalytic domain (5). The classical PTPs and DSPs also differ in their phosphotransferase ability. In classical PTPs the phosphoenzyme intermediate is attacked only by water due to the shielding effect of conserved Q-loop residues, named for the presence of conserved glutamines (6). In contrast, DSPs such as VHR, and the low-molecular weight LMW-Ltp1, both of which lack the Q-loop, display significant phosphotransferase ability (7). On this basis, it has been concluded that the presence of the Q-loop prevents phosphotransferase activity. VHZ, and the closely related phosphatase S.solfataricus PTP (SsoPTP), are among the smallest classical PTPs known to date (Figure 1). The SsoPTP (161 amino acids) is similar to VHZ (150 amino acids) in size and catalytic activity. Both VHZ and SsoPTP consist of a single, catalytic domain that is more similar to classical PTPs than DSPs (8, 9) and contain identical secondary structural elements, but, unlike most classical PTPs, lack an N-terminal extension that forms a substrate recognition/binding loop. Like VHZ, the general acid in SsoPTP resides on a rigid IPD-loop, which, unlike the flexible WPD-loop in classical PTPs, permanently occupies a closed conformation. Unlike VHZ, and like classical PTPs, SsoPTP/WT contains no additional general acid in its Q-loop region. VHZ was originally classified as an atypical DSP and named after its prototypical member as VH1-related protein member Z. In previous work, we presented results indicating that VHZ should be classified as a PTP rather than a DSP, on the basis of a structural analysis and results of a phosphopeptide substrate screen in which VHZ showed activity against pY–containing peptides but not toward pS- or pT-peptides (8). Figure 1 Side by side comparison of (A) VHZ/PTP (PDB ID 4ERC), and (B), SsoPTP (PDB ID 2I6J). The proteins are very similar in size and structure, and both contain a rigid IPD-loop (highlighted in red) in contrast to the conserved WPD-loop in classical PTPs. Both ... In the present work, we show that the catalytic activity of VHZ was significantly underestimated in previous reports, as a result of pronounced product inhibition, and the inhibitory effect of certain buffers. Despite much in common with classical PTPs, VHZ is highly unusual in possessing two acidic residues in the active site, D65 and E134. Our results indicate that under certain circumstances either of these residues can serve as the general acid in the first step of the reaction. We also present results demonstrating that VHZ, despite the presence of a Q-loop, catalyzes phosphoryl transfer to alcohols (alcoholysis) in addition to water (hydrolysis) (Scheme 2). Scheme 2 Partitioning of the enzyme-phosphate intermediate [E-P] between hydrolysis and alcoholysis pathways. Alcohols, or a water nucleophile, in two competing pathways attack the phosphoenzyme intermediate formed in the first step. The mutagenesis of several residues in VHZ in parallel with SsoPTP has revealed that, in addition to the Q-loop, particular residues in the general acid IPD-loop play a crucial role in nucleophilic selectivity. A combination of kinetics and mutagenesis experiments have revealed unusual aspects of the kinetic behavior of VHZ and given insights into factors that control the phosphotransferase activity of VHZ, and possibly in other PTPs.