Protein phosphorylation plays a cardinal role in regulating many cellular processes in eukaryotes. In particular, protein phosphorylation is a major currency of signal transduction pathways. Processes that are reversibly controlled by protein phosphorylation require not only a protein kinase (PK) but also a protein phosphatase (PP). Target proteins are phosphorylated at specific sites by one or more PKs, and these phosphates are removed by specific PPs. In principle, the extent of phosphorylation at a particular site can be regulated by changing the activity of the cognate PK or PP or both. The importance of PKs in regulating cellular activities is underscored by the large number of PK genes that are present in eukaryotic genomes. The latest estimate is that humans have as many as 2000 conventional PK genes (Hunter, 1994). The appreciation that there is also a large number of PPs with distinct specificities has been more recent. Indeed, extrapolating from the density of PP genes in the recently reported 2.2 Mb of chromosome lit sequence (Wilson et al., 1994), one can calculate that Caenorhabditis elegans has about 230 PP genes; about half these encode proteinserine/threonine phosphatases (PSPs) and the other half protein-tyrosine phosphatases (PTPs). Since mammals have about five times as many genes as C. elegans, humans could have as many as 1000 PP genes. The idea that PPs act constitutively to reverse the action of regulated PKs has also proved to be a misconception. Although the use of PP inhibitors shows that there is significant basal PP activity in cells, it has become apparent that the activities of PPs are regulated in a sophisticated manner by a combination of targeting and regulatory subunits and by specific inhibitors (Table 1)(reviewed by Cohen and Cohen, 1989; Cohen, 1992; Hubbard and Cohen, 1993; MacKintosh and MacKintosh, 1994; Shenolikar, 1994). The essential nature of PP function can be discerned in the yeasts, where genetic analysis has shown that the four major types of PSPs, namely PP1, PP2A, PP2B, and PP2C, are all essential genes, with the catalytic (C) subunit genes often being present in multiple copies. PP genes have also been uncovered in yeast mutant hunts; for instance, SIT4, which encodes a PPl-related C subunit, was identified as a suppressor of HIS4 transcription. Likewise, genes for the A-and B-type PP2A subunits have been encountered in this way: TPD3 encodes an A-type subunit and complements a temperature-sensitive mutation in transfer RNA (tRNA) synthesis, and CDC55 encodes a B-type subunit. PP mutations also generate phenotypes in higher eukaryotes, including in Drosophilathe abnormal anaphase resolution (aar) mutant in the PP2A B-type regulatory subunit and the retinal degeneration (rdgc) mutant in a novel PPl/PP2A-related C subunit and in the mouse the motheaten mutation in the PTPIC (HCP, SH-PTP1) gene. The importance of PPs in cellular physiology is emphasized by the fact that they are often targets for micro-