Phosphatases and kinases are the cellular signal transduction enzymes that control protein phosphorylation. PRL phosphatases constitute a novel class of small (20 kDa), prenylated phosphatases with oncogenic activity. In particular, PRL-3 is consistently overexpressed in liver metastasis in colorectal cancer cells and represents a new therapeutic target. Here, we present the solution structure of PRL-3, the first structure of a PRL phosphatase. The structure places PRL phosphatases in the class of dual specificity phosphatases with closest structural homology to the VHR phosphatase. The structure, coupled with kinetic studies of site-directed mutants, identifies functionally important residues and reveals unique features, differentiating PRLs from other phosphatases. These differences include an unusually hydrophobic active site without the catalytically important serine/threonine found in most other phosphatases. The position of the general acid loop indicates the presence of conformational change upon catalysis. The studies also identify a potential regulatory role of Cys 49 that forms an intramolecular disulfide bond with the catalytic Cys 104 even under mildly reducing conditions. Molecular modeling of the highly homologous PRL-1 and PRL-2 phosphatases revealed unique surface elements that are potentially important for specificity.PRL (for phosphatase of regenerating liver) phosphatases constitute a novel class of small tyrosine phosphatases involved in the modulation of cell growth. Initial studies identified PRL-1 as an intermediate-early gene expressed in the early response of regenerating liver tissue to mitogens (1). Overexpression of this protein was shown to lead to cellular transformation (1-3). The biological role of PRL-1 is tissue-dependent. Its overexpression is associated with cell proliferation in the liver (1) but with differentiation of epithelial cells in the digestive system (4). The closely related phosphatases PRL-2 and PRL-3 are also involved in growth regulation, proliferation, and cell invasion (3, 5, 6). All three proteins are prenylated at their C terminus, which critically affects their cellular localization and function (6 -8). As shown for the human PRL-2, the role of PRLs is associated with the regulation of progression through mitosis, and their cellular localization is likely controlled by the cell cycle (8).PRL phosphatases are widely distributed in eukaryotes. In humans, PRL-1 and PRL-2 are ubiquitously expressed in various tissues (6), whereas PRL-3 is normally expressed in cardiac and skeletal muscles (5). Comprising typically only 140 -180 amino acids, PRLs are among the smallest phosphatases. They consist of a single catalytic domain lacking any auxiliary docking/regulatory domains other than the prenylation site at the C terminus. PRLs contain the protein-tyrosine phosphatase (PTPase) 1 active consensus motif HCXXGXXR, referred to as the P-loop; however, their primary sequence shows only remote similarity to phosphatases in other regions. Tyrosine-specific phosphatases a...