Vaccinia H1-related phosphatase (VHR/DUSP3) is a member of the dual-specificity phosphatase family. Deregulation of VHR is observed in various malignant diseases. We identified focal adhesion kinase (FAK) as a VHR-interacting molecule. Over-expression of VHR decreased tyrosine phosphorylation of FAK and decreasing VHR promoted FAK tyrosine phosphorylation. In vitro assays proved that recombinant VHR directly dephosphorylated FAK and paxillin. VHR-knockout mice did not have obvious abnormality; however, VHR-knockout cells showed decreased expression of integrins and FAK but stronger FAK and paxillin phosphorylation upon attachment to fibronectin. Additionally, VHR-knockout fibroblast and lung epithelial cells had elevated ligand-induced epidermal growth factor receptor (EGFR) phosphorylation. Inducible expression of VHR suppressed directional cell migration, and VHR deficiency resulted in a higher cell migratory ability. VHR-knockout cells have stronger FAK phosphorylation in cell adhesions, long-lasting trailing ends and slower turnover of focal adhesions. These collective data indicate that VHR is a FAK phosphatase and participates in regulating the formation and disassembly of focal adhesions.