The function of viral protein 2 (VP2) of the immunosuppressive circovirus chicken anemia virus (CAV) has not yet been established. We show that the CAV VP2 amino acid sequence has some similarity to a number of eukaryotic, receptor, protein-tyrosine phosphatase (PTPase) alpha proteins as well as to a cluster of human TT viruses within the Sanban group. To investigate if CAV VP2 functions as a PTPase, purified glutathione S-transferase (GST)-VP2 fusion protein was assayed for PTPase activity using the generalized peptide substrates ENDpYINASL and DADEpYLIPQQG (where pY represents phosphotyrosine), with free phosphate detected using the malachite green colorimetric assay. CAV GST-VP2 was shown to catalyze dephosphorylation of both substrates. CAV GST-VP2 PTPase activity for the ENDpYINASL substrate had a V(max) of 14,925 units/mg.min and a K(m) of 18.88 microm. Optimal activity was observed between pH 6 and 7, and activity was specifically inhibited by 0.01 mm orthovanadate. We also show that the ORF2 sequence of the CAV-related human virus TT-like minivirus (TLMV) possessed PTPase activity and steady state kinetics equivalent to CAV GST-VP2 when expressed as a GST fusion protein. To establish whether these viral proteins were dual specificity protein phosphatases, the CAV GST-VP2 and TLMV GST-ORF2 fusion proteins were also assayed for serine/threonine phosphatase (S/T PPase) activity using the generalized peptide substrate RRApTVA, with free phosphate detected using the malachite green colorimetric assay. Both CAV GST-VP2 and TLMV GST-ORF2 fusion proteins possessed S/T PPase activity, which was specifically inhibited by 50 mm sodium fluoride. CAV GST-VP2 exhibited S/T PPase activity with a V(max) of 28,600 units/mg.min and a K(m) of 76 microm. Mutagenesis of residue Cys(95) to serine in CAV GST-VP2 abrogated both PTPase and S/T PPase activity, identifying it as the catalytic cysteine within the proposed signature motif. These studies thus show that the circoviruses CAV and TLMV encode dual specificity protein phosphatases (DSP) with an unusual signature motif that may play a role in intracellular signaling during viral replication. This is the first DSP gene to be identified in a small viral genome.