Reactive oxygen species (ROS) have been implicated as mediators of cell-signaling responses, particularly in pathways involving protein tyrosine phosphorylation. One mechanism by which ROS are thought to exert their effects is through the reversible regulation of cysteine-based phosphatases (CBPs). The CBPs, which include protein tyrosine phosphatases (PTPs), dual-specificity phosphatases, low-molecular-weight PTPs, and the lipid phosphatase PTEN, all contain a nucleophilic catalytic cysteine within a conserved motif that enables these enzymes to dephosphorylate phosphoproteins or phospholipids. In addition to enabling phosphatase activity, the nucleophilic catalytic cysteines of CBPs are also highly susceptible to oxidation, a property that permits redox regulation of this enzyme family. In this review, we discuss the evidence implicating ROS as mediators of CBP activity within signaling pathways and discuss how specificity of ROS-dependent signaling involving CBPs may be achieved. We also discuss the molecular mechanisms that facilitate the stabilization of a reversibly oxidized form of the catalytic cysteine. These mechanisms include the formation of disulfide bonds or the formation of a sulfenamide bond, a novel mechanism that was identified for PTP1B. Formation of either type of covalent bond may be accompanied by dramatic structural rearrangements that can affect downstream signaling events and allow for multitiered enzyme regulation.