The dual specificity mitogen-activated protein kinase phosphatase MKP3 downregulates mitogenic signaling through dephosphorylation of extracellular signal-regulated kinase (ERK). Like other MKPs, MKP3 consists of a noncatalytic N-terminal domain and a catalytic C-terminal domain. ERK binding to the N-terminal noncatalytic domain of MKP3 has been shown to increase (up to 100-fold) the catalytic activity of MKP3 toward small artificial substrates. Here, we address the function of the N-terminal domain of MKP3 in either inter- or intramolecular dephosphorylation of pERK (phosphorylated ERK) and the stoichiometry of the MKP3/pERK Michaelis complex. These are important mechanistic distinctions given the observation that ERK exists in a monomer/dimer equilibrium that is shifted toward the dimer when phosphorylated and given that MKP3 undergoes catalytic activation toward other substrates when bound to ERK. Wild-type and engineered mutants of ERK and MKP3, binding analyses, reaction kinetics, and chemical cross-linking studies were used to demonstrate that the monomer of MKP3 binds to the monomeric form of pERK and that MKP3 within the resulting heterodimer performs intramolecular dephosphorylation of pERK. This study provides the first direct evidence that MKP3 utilizes intramolecular dephosphorylation between a complex consisting of one molecule each of MKP3 and ERK. Catalytic activation and substrate tethering by MKP3 lead to a >or=4000-fold rate enhancement (k(cat)/K(m)) for dephosphorylation of pERK.