The Hippo pathway regulates organ size by controlling both cell proliferation and apoptosis. TAZ functions as a transcriptional co-activator downstream of the Hippo pathway and has been implicated in human cancer development. A key step in the Hippo-TAZ pathway is phosphorylation of TAZ by LATS kinase, which leads to TAZ inhibition by both cytoplasmic retention and degradation. However, the mechanism of TAZ dephosphorylation and the responsible phosphatase are unknown. Here, we identified PP1 as a bona fide TAZ phosphatase. PP1A dephosphorylates TAZ at Ser-89 and Ser-311, promotes TAZ nuclear translocation, and stabilizes TAZ by disrupting the binding to the SCF E3 ubiquitin ligase. Furthermore, ASPP2 facilitates the interaction between TAZ and PP1 to promote TAZ dephosphorylation. As a result, PP1 and ASPP2 increase TAZ-dependent gene expression. This study demonstrates that PP1A and ASPP2 play a critical role in promoting TAZ function by antagonizing the LATS kinase through TAZ dephosphorylation.Genetic screens in Drosophila have delineated a new tumor suppressor pathway, the Hippo pathway, which regulates organ size by controlling both cell proliferation and apoptosis (1). Both the components and functions of the Hippo pathway are conserved from Drosophila to mammals. In mammalian cells, LATS1/2 and MST1/2 are the homologs of Drosophila Warts and Hippo, respectively (2). YAP, the mammalian ortholog of Drosophila Yorkie, has been demonstrated to be phosphorylated and inhibited by LATS (3, 4). TAZ, first identified as a 14-3-3-binding protein, shares ϳ50% sequence identity with YAP and has also been shown to function as a transcriptional co-activator downstream of the Hippo pathway (5, 6). TAZ is involved in the development of multiple organs such as the lung, fat, muscle, bone, limb, and heart, as well as in many cellular, processes including stem cell differentiation, cell proliferation, and epithelial-mesenchymal transition (6 -12). Taz knockout mice develop two severe abnormalities: polycystic kidney disease and emphysema (13,14). Notably, elevated TAZ expression is observed in Ͼ20% of breast cancers, especially invasive ductal carcinomas (12).We previously showed that the activity of TAZ is inhibited by LATS kinase in a mechanism similar to YAP regulation by the Hippo pathway (6). There are four HXRXXS LATS phosphorylation motifs in TAZ. We have demonstrated that phosphorylation of TAZ at Ser-89 by LATS promotes its interaction with 14-3-3, resulting in cytoplasmic sequestration and functional inhibition of TAZ. The S89A mutation makes TAZ partially resistant to inhibition by the Hippo pathway (6). In addition, TAZ stability is also regulated by LATS phosphorylation. A dual phosphorylation of TAZ by LATS and CK1 creates a binding site for -TrCP (beta-Transducin repeat containing protein), the substrate-recruiting subunit of the SCF -TrCP E3 ubiquitin ligase (15). Phosphorylation of TAZ at Ser-311 by LATS provides the priming site for subsequent CK1 phosphorylation at Ser-314 in TAZ, therefore creating a ...