Protein Ser/Thr phosphatase 5 is a 58-kDa protein containing a catalytic domain structurally related to the catalytic subunits of protein phosphatases 1, 2A, and 2B and an extended N-terminal domain with three tetratricopeptide repeats. The activity of this enzyme is stimulated 4 -14-fold in vitro by polyunsaturated fatty acids and anionic phospholipids. The structural basis for lipid activation of protein phosphatase 5 was examined by limited proteolysis and site-directed mutagenesis. Trypsinolysis removed the tetratricopeptide repeat domain and increased activity to approximately half that of lipid-stimulated, full-length enzyme. Subtilisin removed the tetratricopeptide repeat domain and 10 residues from the C terminus, creating a catalytic fragment with activity that was equal to or greater than that of lipid-stimulated, full-length enzyme. Catalytic fragments generated by proteolysis were no longer stimulated by lipid, and degradation of the tetratricopeptide repeat domain was decreased by association with lipid. A truncated mutant missing 13 C-terminal residues was also insensitive to lipid and was as active as full-length, lipid-stimulated enzyme. These results suggest that the C-terminal and N-terminal domain act in a coordinated manner to suppress the activity of protein phosphatase 5 and mediate its activation by lipid. These regions may be targets for the regulation of protein phosphatase 5 activity in vivo.Protein Ser/Thr phosphatases, together with protein Ser/Thr kinases, play an essential role in regulating a variety of cellular processes. The major structural family of protein Ser/Thr phosphatases, the PPP 1 family, includes PP1, PP2A, and 2B, also known as calcineurin, as well as several newer family members about which little is known (1). A growing body of evidence indicates that PPP family members are subject to complex regulation. For example, the catalytic subunits of PP1 and PP2A are bound to regulatory subunits and docking proteins that control their activity, substrate specificity, and subcellular localization (2, 3). In addition to activation by calcium and calmodulin, calcineurin is also associated with proteins that control its intracellular location and activity (4, 5).Protein phosphatase 5 (PP5) is a member of the PPP family with a C-terminal catalytic domain related to those of PP1, PP2A, and calcineurin, and an N-terminal domain consisting of three tetratricopeptide repeats or TPRs (6 -8). Tetratricopeptide repeats occur in a variety of unrelated proteins and are thought to mediate protein-protein interactions (9 -11). The TPR domain of PP5 interacts with a number of proteins in vitro, including the atrial natriuretic peptide receptor (7), Cdc 16p and Cdc 27p, which are two TPR-containing subunits of the anaphase-promoting complex (12), and hCRY2, a human homologue of the photolyase/blue light photoreceptor (13). Protein phosphatase 5 has also been shown to associate in vivo with heat shock protein 90 in complexes with glucocorticoid receptors (14, 15), and overexpression of the TP...