Protein tyrosine phosphorylation and dephosphorylation are central reactions for control of cellular division, differentiation and development. Here we describe the crystal structure of a low-molecular-weight phosphotyrosine protein phosphatase (PTPase), a cytosolic phosphatase present in many mammalian cells. The enzyme catalyses the dephosphorylation of phosphotyrosine-containing substrates, and overexpression of the protein in normal and transformed cells inhibits cell proliferation. The structure of the low-molecular-weight PTPase reveals an alpha/beta protein containing a phosphate-binding loop motif at the amino end of helix alpha 1. This motif includes the essential active-site residues Cys 12 and Arg 18 and bears striking similarities to the active-site motif recently described in the structure of human PTP1B. The structure of the low-molecular-weight PTPase supports a reaction mechanism involving the conserved Cys 12 as an attacking nucleophile in an in-line associative mechanism. The structure also suggests a catalytic role for Asp 129 in the reaction cycle.