Tyrosine phosphatases are an important family of enzymes that regulate critical physiological functions. They are often dysregulated in human diseases, making them key targets of biological studies. Tools that enable the regulation of phosphatase activity are instrumental in the dissection of their function. Traditional approaches, such as overexpression of constitutively active or dominant negative mutants, or downregulation using siRNA, lack temporal control. Phosphatase inhibitors often have poor specificity, and they only allow researchers to determine what processes are affected by the inhibition of the phosphatase. We developed a chemogenetic approach, the Rapamycin-regulated (RapR) system, which allows for allosteric regulation of a phosphatase catalytic domain that enables tight temporal control of phosphatase activation. The RapR system consists of an iFKBP domain inserted into an allosteric site in the phosphatase. The intrinsic structural dynamics of the RapR domain disrupt the catalytic domain, leading to the inactivation of the enzyme. The addition of rapamycin mediates the formation of a complex between iFKBP and a co-expressed FRB protein, which stabilizes iFKBP and restores activity to the phosphatase's catalytic domain. This system provides high specificity and tight temporal control of phosphatase activation in living cells. The unique capabilities of this system enable the identification of transient events and interrogation of individual signaling pathways downstream of a phosphatase. This protocol describes guidelines for the development of a RapR-phosphatase, its biochemical characterization, and the analysis of its effects on downstream signaling and regulation of cell morphodynamics. It also provides a detailed description of a protein engineering strategy, in vitro assays analyzing phosphatase activity, and live cell imaging experiments identifying changes in cell morphology.