Mammalian haloacid dehalogenase (HAD)-type phosphatases are an emerging family of phosphatases with important functions in physiology and disease, yet little is known about the basis of their substrate specificity. Here, we characterize a previously unexplored HAD family member (gene annotation, phosphoglycolate phosphatase), which we termed AUM, for aspartate-based, ubiquitous, Mg(2+)-dependent phosphatase. AUM is a tyrosine-specific paralog of the serine/threonine-specific protein and pyridoxal 5'-phosphate-directed HAD phosphatase chronophin. Comparative evolutionary and biochemical analyses reveal that a single, differently conserved residue in the cap domain of either AUM or chronophin is crucial for phosphatase specificity. We have solved the x-ray crystal structure of the AUM cap fused to the catalytic core of chronophin to 2.65 Å resolution and present a detailed view of the catalytic clefts of AUM and chronophin that explains their substrate preferences. Our findings identify a small number of cap domain residues that encode the different substrate specificities of AUM and chronophin.