Protein phosphatases inactivate mitogen-activated protein kinase (MAPK) signaling pathways by dephosphorylating components of the MAPK cascade. Two genes encoding protein-tyrosine phosphatases, PTP2, and a new phosphatase, PTP3, have been isolated in a genetic selection for negative regulators of an osmotic stress response pathway called HOG, for high osmolarity glycerol, in budding yeast. PTP2 and PTP3 were isolated as multicopy suppressors of a severe growth defect due to hyperactivation of the HOG pathway. Phosphatase activity is required for suppression since mutation of the catalytic Cys residue in Ptp2 and Ptp3, destroys suppressor function and biochemical activity. The substrate of these phosphatases is likely to be the MAPK, Hog1. Catalytically inactive Ptp2 and Ptp3 coprecipitate with Hog1 from yeast extracts. In addition, strains lacking PTP2 and PTP3 do not dephosphorylate Hog1-phosphotyrosine as well as wild type. The latter suggests that PTP2 and PTP3 play a role in adaptation. Consistent with this role, osmotic stress induces expression of PTP2 and PTP3 transcripts in a Hog1-dependent manner. Thus Ptp2 and Ptp3 likely act in a negative feedback loop to inactivate Hog1.