Despite its toxicity, H2O2 is produced as a signaling molecule that oxidizes critical cysteine residues of effectors such as protein tyrosine phosphatases in response to activation of cell surface receptors. It has remained unclear, however, how H2O2 concentrations above the threshold required to modify effectors are achieved in the presence of the abundant detoxification enzymes peroxiredoxin (Prx) I and II. We now show that PrxI associated with membranes is transiently phosphorylated on tyrosine-194 and thereby inactivated both in cells stimulated via growth factor or immune receptors in vitro and in those at the margin of healing cutaneous wounds in mice. The localized inactivation of PrxI allows for the transient accumulation of H2O2 around membranes, where signaling components are concentrated, while preventing the toxic accumulation of H2O2 elsewhere. In contrast, PrxII was inactivated not by phosphorylation but rather by hyperoxidation of its catalytic cysteine during sustained oxidative stress.