The role of Asp128 in the catalytic mechanism of the low Mr protein-tyrosine phosphatase (PTPase) from the fission yeast Schizosaccharomyces pombe has been investigated by a combination of site-directed mutagenesis and pre-steady-state and steady-state kinetic analysis. The corresponding aspartic acid in the bovine enzyme is located on a loop adjacent to the phosphate-binding loop and forms a hydrogen bond with the oxygen atom of the bound sulfate or phosphate that is structurally homologous to the ester oxygen in substrates [Su et al. (1994) Nature 370, 575-578; Zhang, M., et al. (1994) Biochemistry 33, 11097-11105]. Asp128 has been replaced by a Glu, an Asn, and an Ala. The kcat for the hydrolysis of p-nitrophenyl phosphate (pNPP) decreases by factors of 6.7, 400, and 650 for the mutants D128E, D128N, and D128A, respectively. Compared to the wild type, the binding affinity for phosphate is decreased 2 and 4.3-fold, respectively, for the D128A and D128N mutants, whereas no change in affinity is observed for the D128E mutant. An evaluation of the burst kinetics demonstrates that Asp128 plays a role in both the phosphoenzyme intermediate formation (k2) and breakdown (k3). Thus, substitution at Asp128 by a Glu, an Asn, or an Ala reduces k2 by 17, 7480, and 11900 and reduces k3 by 6.2, 380, and 40. The greater effect on k2 and k3 is consistent with a dissociative transition-state for the low M(r)PTPase-catalyzed reaction. Results from the rapid kinetics, partition experiments, and leaving group dependence experiments suggest that for the wild type and D128E mutant, the rate-limiting step is k3, whereas k2 has become rate-limiting for the D128N mutant. With the exception of pNPP, k2 may also be rate-limiting for D128A. Taken together, these results are consistent with Asp128 or Glu128 acting as a general acid to donate a proton to the phenolate leaving group in the phosphorylation step, and the carboxylate side chain plays a role as a general base to activate a nucleophilic water molecule in the dephosphorylation step. The presence of the general acid ensures productive partitioning toward phosphoenzyme formation. In the absence of the general acid, the nature of the transition-state for the phosphorylation step is sensitive to the pKa of the attacking active site thiol group and changes with the structure of the leaving group.