Diacylglycerol pyrophosphate (DGPP) is involved in a putative novel lipid signaling pathway. DGPP phosphatase (DGPP phosphohydrolase) is a membrane-associated 34-kDa enzyme from Saccharomyces cerevisiae which catalyzes the dephosphorylation of DGPP to yield phosphatidate (PA) and then catalyzes the dephosphorylation of PA to yield diacylglycerol. Amino acid sequence information derived from DGPP phosphatase was used to identify and isolate the DPP1 (diacylglycerol pyrophosphate phosphatase) gene encoding the enzyme. Multicopy plasmids containing the DPP1 gene directed a 10-fold overexpression of DGPP phosphatase activity in S. cerevisiae. The heterologous expression of the S. cerevisiae DPP1 gene in Sf-9 insect cells resulted in a 500-fold overexpression of DGPP phosphatase activity over that expressed in wild-type S. cerevisiae. DGPP phosphatase possesses a Mg2+-independent PA phosphatase activity, and its expression correlated with the overexpression of DGPP phosphatase activity in S. cerevisiae and in insect cells. DGPP phosphatase was predicted to be an integral membrane protein with six transmembrane-spanning domains. The enzyme contains a novel phosphatase sequence motif found in a superfamily of phosphatases. A dpp1Delta mutant was constructed by deletion of the chromosomal copy of the DPP1 gene. The dpp1Delta mutant was viable and did not exhibit any obvious growth defects. The mutant was devoid of DGPP phosphatase activity and accumulated (4-fold) DGPP. Analysis of the mutant showed that the DPP1 gene was not responsible for all of the Mg2+-independent PA phosphatase activity in S. cerevisiae.