Bifunctional sensor transmitter modules of two-component systems exert both positive and negative control on the receiver domain of the cognate response regulator. In negative control, the transmitter module accelerates the rate of phospho-receiver dephosphorylation. This transmitter phosphatase reaction serves the important physiological functions of resetting response regulator phosphorylation level and suppressing cross-talk. Although the biochemical reactions underlying positive control are reasonably well understood, the mechanism for transmitter phosphatase activity has been unknown. A recent hypothesis is that the transmitter phosphatase reaction is catalysed by a conserved Gln, Asn or Thr residue, via a hydrogen bond between the amide or hydroxyl group and the nucleophilic water molecule in acyl-phosphate hydrolysis. This hypothetical mechanism closely resembles the established mechanisms of auxiliary phosphatases such as CheZ and CheX, and may be widely conserved in two-component signal transduction. In addition to the proposed catalytic residues, transmitter phosphatase activity also requires the correct transmitter conformation and appropriate interactions with the receiver. Evidence suggests that the phosphatase-competent and autokinase-competent states are mutually exclusive, and the corresponding negative and positive activities are likely to be reciprocally regulated through dynamic control of transmitter conformations.