PAC-1 is an inducible, nuclear-specific, dual-specificity mitogen-activated protein (MAP) kinase phosphatase that has been shown recently to be a transcription target of the human tumor-suppressor protein p53 in signaling apoptosis and growth suppression. However, its substrate specificity and regulation of catalytic activity thus far remain elusive. Here, we report in vitro characterization of PAC-1 phosphatase activity with three distinct MAP kinase subfamilies. We show that the recombinant PAC-1 exists in a virtually inactive state when alone in vitro, and dephosphorylates extracellular signal-regulated kinase 2 (ERK2) but not p38α or c-Jun NH₂-terminal kinase 2 (JNK2). ERK2 dephosphorylation by PAC-1 requires association of its amino-terminal domain with ERK2 that results in catalytic activation of the phosphatase. p38α also interacts with but does not activate PAC-1, whereas JNK2 does not bind to or cause catalytic activation by PAC-1. Moreover, our structure-based analysis reveals that individual mutation of the conserved Arg294 and Arg295 that likely comprise the phosphothreonine-binding pocket in PAC-1 to either alanine or lysine results in a nearly complete loss of its phosphatase activity even in the presence of ERK2. These results suggest that Arg294 and Arg295 play an important role in PAC-1 catalytic activation induced by ERK2 binding.