SCD5, an essential gene, encodes a protein important for endocytosis and actin organization in yeast. Previous two-hybrid screens showed that Scd5p interacts with Glc7p, a yeast Ser/Thr-specific protein phosphatase-1 (PP1) that participates in a variety of cellular processes. PP1 substrate specificity in vivo is regulated by association with different regulatory or targeting subunits, many of which have a consensus PP1-binding site ((V/I)XF, with a basic residue at the -1 or -2 position). Scd5p contains two of these potential PP1-binding motifs: KVDF (amino acids 240-243) and KKVRF (amino acids 272-276). Deletion analysis mapped the PP1-binding domain to a region of Scd5p containing these motifs. Therefore, the consequence of mutating these two potential PP1-binding sites was examined. Although mutation of KVDF had no effect, alteration of KKVRF dramatically reduced Scd5p interaction with Glc7p and resulted in temperature-sensitive growth. Furthermore, this mutation caused defects in fluid phase and receptor-mediated endocytosis and actin organization. Overexpression of GLC7 suppressed the temperature-sensitive growth of the KKVRF mutant and partially rescued the actin organization phenotype. These results provide evidence that Scd5p is a PP1 targeting subunit for regulation of actin organization and endocytosis or that Scd5p is a PP1 substrate, which regulates the function of Scd5p in these processes.