The crystal structure of the bovine liver low M(r) phosphotyrosine protein phosphatase suggests the involvement of aspartic acid-129 in enzyme catalysis. The Asp-129 to alanine mutant has been prepared by oligonucleotide-directed mutagenesis of a synthetic gene coding for the enzyme. The purified mutant elicited an highly reduced specific activity (about 0.04% of the activity of the wild-type) and a native-like fold, as judged by 1H NMR spectroscopy. The kinetic analysis revealed that the mutant is able to bind the substrate and a competitive inhibitor, such as inorganic phosphate. Moreover, trapping experiments demonstrated it maintains the ability to form the E-P covalent complex. The Asp-129 to alanine mutant shows extremely reduced enzyme phosphorylation (k2) and dephosphorylation (k3) kinetic constant values as compared to the wild-type enzyme. The data reported indicate that aspartic acid-129 is likely to be involved both in the first step and in the rate-limiting step of the catalytic mechanism, i.e. the nucleophilic attack of the phosphorylated intermediate.