AKT, a serine/threonine kinase that promotes cell survival, can be activated by overexpression of the receptor tyrosine kinase ErbB2. Conversely, down-regulation of ErbB2 inhibits AKT activation. Here, we identify PP1 as a serine/threonine phosphatase that associates with and dephosphorylates AKT in breast cancer cells, and we show that ErbB2 inhibits PP1-dependent dephosphorylation of AKT. Inhibition of ErbB2 by either the HSP (heat shock protein) 90 inhibitor geldanamycin or the ErbB inhibitor ZD1839 in SKBR3 cells, a human breast cancer cell line overexpressing ErbB2 protein, induces a rapid and dramatic decrease in AKT activity. Decreased AKT activity occurs many hours before the HSP90-dependent decline of AKT protein but is correlated with loss of AKT phosphorylation. Decreased AKT phosphorylation is not due to blockade of AKT activation or to preferential HSP90-mediated degradation of phosphorylated AKT. Instead, it is caused by increased AKT dephosphorylation. Sensitivity to a panel of phosphatase inhibitors suggests involvement of the phosphatase PP1 in this process. In vitro phosphatase assay (using PP1 immunoprecipitated from COS7 cells transiently transfected with the wild-type protein, as well as purified PP1) confirmed that AKT is a substrate of PP1. Furthermore, endogenous PP1 and AKT associate with each other in SKBR3. However, the phosphatase is phosphorylated and its activity is suppressed (determined by in vitro assay). In contrast, ErbB2 inhibition abrogates PP1 phosphorylation and restores its activity (measured by its ability to dephosphorylate AKT in vitro). Finally, transient overexpression of constitutively active PP1 in SKBR3 cells promotes marked dephosphorylation of endogenous AKT protein. These data indicate that ErbB2 acts to preserve the phosphorylation, and hence to prolong the activation, of AKT kinase by repressing the activity of the phosphatase PP1. ErbB2 thus functions to regulate AKT kinase by simultaneously promoting its activation while inhibiting its inactivation.