Protein phosphatase 2A (PP2A) is a family of heterotrimeric protein phosphatases that has a multitude of functions inside the cell, acting through various substrate targets in cell-signaling pathways. Recent evidence suggests that a subset of PP2A holoenzymes function as tumor suppressors and one particular family of B subunits, B56, are implicated in this function. However, the regulatory mechanisms that govern activation of B56-PP2A tumor-suppressive function have not been elucidated. In the present study, we demonstrate that ataxiatelangiectasia mutated (ATM) directly phosphorylates and specifically regulates B56c3, B56c2 and B56d, after DNA damage. We further show that phosphorylation of B56c3 at Ser510 leads to an increase in B56c3-PP2A complexes, and direction of PP2A phosphatase activity toward the substrate p53, activating its tumor-suppressive functions. In addition, we found that under cell growth conditions B56c3 is kept at low levels through the actions of the E3 ubiquitin ligase MDM2, and, importantly, phosphorylation of B56c3 by ATM leads to upregulation of the protein by blocking MDM2-mediated B56c3 ubiquitination. Finally, we show that Ser510 phosphorylation significantly enhances the ability of B56c3 to inhibit cell proliferation and anchorage-independent growth. These results provide mechanistic insight into the regulation of PP2A tumor-suppressive function, and suggest a model for parallel regulation of p53 and B56c3.