PHOSPHO1 is a recently identified phosphatase whose expression is upregulated in mineralizing cells and is implicated in the generation of inorganic phosphate for matrix mineralization, a process central to skeletal development. The enzyme is a member of the haloacid dehalogenase (HAD) superfamily of magnesium-dependent hydrolases. However, the natural substrate(s) is as yet unidentified and to date no structural information is known. We have identified homologous proteins in a number of species and have modelled human PHOSPHO1 based upon the crystal structure of phosphoserine phosphatase (PSP) from Methanococcus jannaschii. The model includes the catalytic Mg(2+) atom bound via three conserved Asp residues (Asp32, Asp34 and Asp203); O-ligands are also provided by a phosphate anion and two water molecules. Additional residues involved in PSP-catalysed hydrolysis are conserved and are located nearby, suggesting both enzymes share a similar reaction mechanism. In PHOSPHO1, none of the PSP residues that confer the enzyme's substrate specificity (Arg56, Glu20, Met43 and Phe49) are conserved. Instead, we propose that two fully conserved Asp residues (Asp43 and Asp123), not present in PSPs contribute to substrate specificity in PHOSPHO1. Our findings show that PHOSPHO1 is not a member of the subfamily of PSPs but belongs to a novel, closely related enzyme group within the HAD superfamily.