The crystal structures of the protein-tyrosine phosphatase SHP-1 catalytic domain and the complex it forms with the substrate analogue tungstate have been determined and refined to crystallographic R values of 0.209 at 2.5 A resolution and 0.207 at 2.8 A resolution, respectively. Despite low sequence similarity, the catalytic domain of SHP-1 shows high similarity in secondary and tertiary structures with other protein-tyrosine phosphatases (PTPs). In contrast to the conformational changes observed in the crystal structures of PTP1B and Yersinia PTP, the WPD loop (Trp419-Pro428) in the catalytic domain of SHP-1 moves away from the substrate binding pocket after binding the tungstate ion. Sequence alignment and structural analysis suggest that the residues in the WPD loop, especially the amino acid following Asp421, are critical for the movement of WPD loop on binding substrates and the specific activity of protein-tyrosine phosphatases. Our mutagenesis and kinetic measurements have supported this hypothesis.