Human VHR (vaccinia H1 related phosphatase) is a member of the dual-specificity phosphatases (DSPs) that often act on bisphosphorylated protein substrates. Unlike most DSPs, VHR displays a strong preference for dephosphorylating phosphotyrosine residues over phosphothreonine residues. Here we describe the 2.75 A crystal structure of the C124S inactive VHR mutant in complex with a bisphosphorylated peptide corresponding to the MAP kinase activation lip. This structure and subsequent biochemical studies revealed the basis for the strong preference for hydrolyzing phosphotyrosine within bisphosphorylated substrates containing -pTXpY-. In the structure, the two phospho residues are oriented into distinct pockets; the phosphotyrosine is bound in the exposed yet deep active site cleft while the phosphothreonine is loosely tethered into a nearby basic pocket containing Arg(158). As this structure is the first substrate-enzyme complex reported for the DSP family of enzymes, these results provide the first glimpse into how DSPs bind their protein substrates.