Vaccinia H1-related (VHR) phosphatase is a dual specificity phosphatase that is required for cell-cycle progression and plays a role in cell growth of certain cancers. Therefore, it represents a potential drug target. VHR is structurally and biochemically well characterized, yet its regulatory principles are still poorly understood. Understanding its regulation is important, not only to comprehend VHR's biological mechanisms and roles but also to determine its potential and druggability as a target in cancer. Here, we investigated the functional role of the unique "variable insert" region in VHR by selectively introducing the photo-cross-linkable amino acid para-benzoylphenylalanine (pBPA) using the amber suppression method. This approach led to the discovery of VHR dimerization, which was further confirmed using traditional chemical cross-linkers. Phe68 in VHR was discovered as a residue involved in the dimerization. We demonstrate that VHR can dimerize inside cells, and that VHR catalytic activity is reduced upon dimerization. Our results suggest that dimerization could occlude the active site of VHR, thereby blocking its accessibility to substrates. These findings indicate that the previously unknown transient self-association of VHR acts as a means for the negative regulation of its catalytic activity.