We have investigated the mechanism by which fission yeast p80cdc25 induces mitosis. The in vivo active domain was localized to the C-terminal 23 kDa of p80cdc25. This domain produced as a bacterial fusion protein (GST-cdc25) caused tyrosyl dephosphorylation and activation of immunoprecipitated p34cdc2. Furthermore, GST-cdc25 dephosphorylated both para-nitrophenyl-phosphate (pNPP) and casein phosphorylated on serine in vitro. Reaction requirements and inhibitor sensitivities were the same as those of phosphotyrosine phosphatases (PTPases). Analysis of cdc25 C-terminal domains from a variety of species revealed a conserved motif having critical residues present at the active site of PTPases. Mutation of the cdc25 Cys480 codon, corresponding to an essential cysteine in the active site of PTPases, abolished the phosphatase activity of GST-cdc25. These data indicate that cdc25 proteins define a novel subclass of eukaryotic PTPases, and strongly argue that cdc25 proteins directly dephosphorylate and activate p34cdc2 kinase to induce M-phase.