Engineering site-specific amino acid substitutions into the protein-tyrosine phosphatase (PTPase) PTP1 and the dual-specific vaccinia H1-related phosphatase (VHR), has kinetically isolated the two chemical steps of the reaction and provided a rare opportunity for examining transition states and directly observing the phosphoenzyme intermediate. Changing serine to alanine in the active-site sequence motif HCXXGXXRS shifted the rate-limiting step from intermediate formation to intermediate hydrolysis. Using phosphorus 31P NMR, the covalent thiol-phosphate intermediate was directly observed during catalytic turnover. The importance of the conserved aspartic acid (D92 in VHR and D181 in PTP1) in both chemical steps was established. Kinetic analysis of D92N and D181N mutants indicated that aspartic acid acts as a general acid by protonating the leaving-group phenolic oxygen. Structure-reactivity experiments with native and aspartate mutant enzymes established that proton transfer is concomitant with P-O cleavage, such that no charge develops on the phenolic oxygen. Steady- and presteady-state kinetics, as well as NMR analysis of the double mutant D92N/S131A (VHR), suggested that the conserved aspartic acid functions as a general base during intermediate hydrolysis. As a general base, aspartate would activate a water molecule to facilitate nucleophilic attack. The amino acids involved in transition-state stabilization for cysteinylphosphate hydrolysis were confirmed by the x-ray structure of the Yersinia PTPase complexed with vanadate, a transition-state mimic that binds covalently to the active-site cysteine. Consistent with the NMR, x-ray, biochemical, and kinetic data, a unifying mechanism for catalysis is proposed.