The human genome encodes approximately 100 phosphatases that belong to the protein tyrosine phosphatase (PTP) superfamily. The hallmark for this superfamily is the active site sequence C(X)5R, also known as the PTP signature motif. The PTPs are key regulatory components in signal transduction pathways and the importance of PTPs in the control of cellular signaling is well established. Based on structure and substrate specificity, the PTP superfamily is divided into four distinct subfamilies: (1) pTyr-specific PTPs, (2) dual specificity phosphatases, (3) Cdc25 phosphatases, and (4) LMW PTPs. The PTPs have similar core structures made of a central parallel β-sheet with flanking α-helices containing a β-loop-α-loop that encompasses the PTP signature motif. Site-directed mutagenesis of conserved amino acids in the Yersinia PTP and several other phosphatases in the PTP superfamily combined with detailed kinetic and mechanistic analyses have revealed a common chemical mechanism for phosphate hydrolysis despite the differences in substrate specificity. This article reviews our current knowledge of the common features important for PTP catalysis, the nature of the enzymatic transition state, and the roles of essential residues in transition stabilization. Future mechanistic studies of PTPs will focus on the use of physiological substrates to determine the molecular basis of substrate recognition and regulation, which is essential for understanding the specific functional role of PTPs in cellular signaling.