The reversible nature of protein phosphorylation dictates that any protein 
kinase activity must be counteracted by protein phosphatase activity. How 
phosphatases target specific phosphoprotein substrates and reverse the action of 
kinases, however, is poorly understood in a biological context. We address this 
question by elucidating a novel function of the conserved PP4 family phosphatase 
Pph3-Psy2, the yeast counterpart of the mammalian PP4c-R3 complex, in the 
glucose-signaling pathway. Our studies show that Pph3-Psy2 specifically targets 
the glucose signal transducer protein Mth1 via direct binding of the EVH1 domain 
of the Psy2 regulatory subunit to the polyproline motif of Mth1. This activity 
is required for the timely dephosphorylation of the downstream transcriptional 
repressor Rgt1 upon glucose withdrawal, a critical event in the repression of 
HXT genes, which encode glucose transporters. Pph3-Psy2 dephosphorylates Mth1, 
an Rgt1 associated corepressor, but does not dephosphorylate Rgt1 at sites 
associated with inactivation, in vitro. We show that Pph3-Psy2 phosphatase 
antagonizes Mth1 phosphorylation by protein kinase A (PKA), the major protein 
kinase activated in response to glucose, in vitro and regulates Mth1 function 
via putative PKA phosphorylation sites in vivo. We conclude that the Pph3-Psy2 
phosphatase modulates Mth1 activity to facilitate precise regulation of HXT gene 
expression by glucose.