Slingshots are phosphatases that modulate cytoskeleton dynamics, and their activities are tightly regulated in different physiological contexts. Recently, abnormally elevated Slingshot activity has been implicated in many human diseases, such as cancer, Alzheimer's disease, and vascular diseases. Therefore, Slingshot-specific inhibitors have therapeutic potential. However, an enzymological understanding of the catalytic mechanism of Slingshots and of their activation by actin is lacking. Here, we report that the N-terminal region of human Slingshot2 auto-inhibits its phosphatase activity in a noncompetitive manner. pH-dependent phosphatase assays and leaving-group dependence studies suggested that the N-terminal domain of Slingshot2 regulates the stability of the leaving group of the product during catalysis by modulating the general acid Asp361 in the catalytic VYD loop. F-actin binding relieved this auto-inhibition and restored the function of the general acid. Limited tryptic digestion and biophysical studies identified large conformational changes in Slingshot2 after the F-actin binding. The dissociation of N-terminal structural elements, including Leu63, and the exposure of the loop between α-helix-2 and β-sheet-3 of the phosphatase domain served as the structural basis for Slingshot activation via F-actin binding in vitro and via neuregulin stimulation in cells. Moreover, we designed a FlAsH-BRET-based Slingshot2 biosensor whose readout was highly correlated with the in vivo phosphatase activities of Slingshot2. Our results reveal the auto-inhibitory mechanism and allosteric activation mechanisms of a human Slingshot phosphatase. They also contribute to the design of new strategies to study Slingshot regulation in various cellular contexts and to screen for new activators/inhibitors of Slingshot activity.