We report the identification of the PPS1 gene of Saccharomyces cerevisiae. The deduced amino acid sequence of PPS1p shows similarity with protein-tyrosine phosphatases (PTPases) and is most closely related to a subfamily of PTPases that are capable of dephosphorylating phosphoseryl and phosphothreonyl residues as well as phosphotyrosyl residues. Analysis of the predicted amino acid sequence suggests that the protein consists of an active phosphatase domain, an inactive phosphatase-like domain, and an NH2-terminal extension. Mutation of the catalytic cysteinyl residue in the active phosphatase domain reduced the in vitro activity of the mutant protein to less than 0.5% of wild type activity, while mutation of the corresponding cysteinyl residue of the inactive phosphatase-like domain had no effect on in vitro activity. The PPS1 protein was expressed in Escherichia coli, and the protein was shown to catalyze the hydrolysis of p-nitrophenyl phosphate, dephosphorylate phosphotyrosyl, and phosphothreonyl residues in synthetic diphosphorylated peptides and to inactivate the human ERK1 protein. PPS1 transcript abundance is coregulated with that of the divergently transcribed DPB3 gene, which codes for a subunit of DNA polymerase II, with both transcripts showing peak abundance in S phase. pps1Delta mutant strains did not differ from PPS1 strains under any of the conditions tested, but overexpression of the PPS1 protein in S. cerevisiae led to synchronous growth arrest and to aberrant DNA synthesis. A screen for suppressors of this growth arrest identified the RAS2 gene as a multicopy suppressor of the PPS1p overexpression arrest. The arrest was not suppressed by the presence of multicopy RAS1, TPK2, or TPK3 genes or by the presence of 5 mM cAMP in the growth medium, suggesting that PPS1 functions in a pathway involving RAS2, but not TPK kinases or adenylate cyclase.