DNA ligase D (LigD) catalyzes end-healing and end-sealing steps during nonhomologous end joining in bacteria. Pseudomonas aeruginosa LigD consists of a central ATP-dependent ligase domain fused to a C-terminal polymerase domain and an N-terminal 3'-phosphoesterase (PE) module. The PE domain catalyzes manganese-dependent phosphodiesterase and phosphomonoesterase reactions at a duplex primer-template with a short 3'-ribonucleotide tract. The phosphodiesterase, which cleaves a 3'-terminal diribonucleotide to yield a primer strand with a ribonucleoside 3'-PO4 terminus, requires the vicinal 2'-OH of the penultimate ribose. The phosphomonoesterase converts the terminal ribonucleoside 3'-PO4 to a 3'-OH. Here we show that the PE domain has a 3'-phosphatase activity on an all-DNA primer-template, signifying that the phosphomonoesterase reaction does not depend on a 2'-OH. The distinctions between the phosphodiesterase and phosphomonoesterase activities are underscored by the results of alanine-scanning, limited proteolysis, and deletion analysis, which show that the two reactions depend on overlapping but nonidentical ensembles of protein functional groups, including: (i) side chains essential for both ribonuclease and phosphatase activity (His-42, His-48, Asp-50, Arg-52, His-84, and Tyr-88); (ii) side chains important for 3'-phosphatase activity but not for 3' ribonucleoside removal (Arg-14, Asp-15, Glu-21, Gln-40, and Glu-82); and (iii) side chains required selectively for the 3'-ribonuclease (Lys-66 and Arg-76). These constellations of critical residues are unique to LigD-like proteins, which we propose comprise a new bifunctional phosphoesterase family.