LDP3 (VHZ) is the smallest classical protein tyrosine phosphatase (PTP) known to date and was originally misclassified as an atypical dual-specificity phosphatase. Kinetic isotope effects with steady-state and pre-steady-state kinetics of VHZ and mutants with p-nitrophenol phosphate have revealed several unusual properties. VHZ is significantly more active than previously reported but remains one of the least active PTPs. Highly unusual for a PTP, VHZ possesses two acidic residues (E134 and D65) in the active site. D65 occupies the position corresponding to the typical general acid in the PTP family. However, VHZ primarily utilizes E134 as the general acid, with D65 taking over this role when E134 is mutated. This unusual behavior is facilitated by two coexisting, but unequally populated, substrate binding modes. Unlike most classical PTPs, VHZ exhibits phosphotransferase activity. Despite the presence of the Q-loop that normally prevents alcoholysis of the phosphoenzyme intermediate in other classical PTPs, VHZ readily phosphorylates ethylene glycol. Although mutations of Q-loop residues affect this phosphotransferase activity, mutations on the IPD loop that contains the general acid exert more control over this process. A single P68V substitution on this loop completely abolishes phosphotransferase activity. The ability of native VHZ to catalyze transphosphorylation may lead to an imbalance of intracellular phosphorylation, which could explain the correlation of its overexpression with several types of cancer.