Protein tyrosine phosphorylation is associated with alterations in receptor activity, cellular proliferation and modulation of the cell cycle. Inappropriate tyrosine phosphorylation can lead to unrestrained cell growth and oncogenesis. Enzymes important in tyrosine dephosphorylation have also been described. Protein tyrosine phosphatases (PTPases) consist of two families. There is a receptor-like family of PTPases with an extracellular domain, transmembrane-spanning region and typically two repeated phosphatase domains. Proteins of the non-receptor-like family have a single catalytic phosphatase domain, show a substrate specificity for Tyr phosphate and will not hydrolyse Ser or Thr phosphate. Here we report that the vaccinia virus genome contains an open reading frame which shares amino-acid sequence identity with the PTPases. The purified protein encoded by the vaccinia virus H1 open reading frame expressed in bacteria hydrolyses substrates containing phosphotyrosine and phosphoserine. Mutagenesis of an essential Cys in the vaccinia phosphatase abolishes catalytic activity directed towards both substrates, suggesting that hydrolysis proceeds by a common mechanism. Understanding the function of the H1-encoded protein will help to define the role of the phosphatase in viral replication and pathogenesis.