Mutations in the CWH8 gene, which encodes an ER transmembrane protein with a phosphate binding pocket in Saccharomyces cerevisiae, result in a deficiency in dolichyl pyrophosphate (Dol-P-P)-linked oligosaccharide intermediate synthesis and protein N-glycosylation (van Berkel, M. A., Rieger, M., te Heesen, S., Ram, A. F., van den Ende, H., Aebi, M., and Klis, F. M. (1999) Glycobiology 9, 243-253). Genetic, enzymological, and topological approaches were taken to investigate the potential role of Cwh8p in Dol-P-P/Dol-P metabolism. Overexpression of Cwh8p in the yeast double mutant strain, lacking LPP1/DPP1, resulted in an impressive increase in Dol-P-P phosphatase activity, a relatively small increase in Dol-P phosphatase activity, but no change in phosphatidate (PA) phosphatase activity in microsomal fractions. The Dol-P-P phosphatase encoded by CWH8 is optimally active in the presence of 0.5% octyl glucoside and relatively unstable in Triton X-100, distinguishing this activity from the lipid phosphatases encoded by LPP1 and DPP1. Stoichiometric amounts of P(i) and Dol-P are formed during the enzymatic reaction indicating that Cwh8p cleaves the anhydride linkage in Dol-P-P. Membrane fractions from Sf-9 cells expressing Cwh8p contained a 30-fold higher level of Dol-P-P phosphatase activity, a slight increase in Dol-P phosphatase activity, but no increase in PA phosphatase relative to controls. This is the first report of a lipid phosphatase that hydrolyzes Dol-P-P/Dol-P but not PA. In accord with this enzymatic function, Dol-P-P accumulated in cells lacking the Dol-P-P phosphatase. Topological studies using different approaches indicate that Cwh8p is a transmembrane protein with a luminally oriented active site. The specificity, subcellular location, and topological orientation of this novel enzyme are consistent with a role in the re-utilization of the glycosyl carrier lipid for additional rounds of lipid intermediate biosynthesis after its release during protein N-glycosylation reactions.