The life cycle of protein kinase C (PKC) is controlled by multiple phosphorylation and dephosphorylation steps. The maturation of PKC requires three ordered phosphorylations, one at the activation loop and two at COOH-terminal sites, the turn motif and the hydrophobic motif, to yield a stable and signalingcompetent enzyme. Dephosphorylation of the enzyme leads to protein degradation. We have recently discovered a novel family of protein phosphatases named PH domain leucine-rich repeat protein phosphatase (PHLPP) whose members terminate Akt signaling by dephosphorylating the hydrophobic motif on Akt. Here we show that the two PHLPP isoforms, PHLPP1 and PHLPP2, also dephosphorylate the hydrophobic motif on PKC II, an event that shunts PKC to the detergent-insoluble fraction, effectively terminating its life cycle. Deletion mutagenesis reveals that the PH domain is necessary for the effective dephosphorylation of PKC II by PHLPP in cells, whereas the PDZbinding motif, required for Akt regulation, is dispensable. The phorbol ester-mediated dephosphorylation of the hydrophobic site, but not the turn motif or activation loop, is insensitive to okadaic acid, consistent with PHLPP, a PP2C family member, controlling the hydrophobic site. In addition, knockdown of PHLPP expression reduces the rate of phorbol ester-triggered dephosphorylation of the hydrophobic motif, but not turn motif, of PKC ␣. Last, we show that depletion of PHLPP in colon cancer and normal breast epithelial cells results in an increase in conventional and novel PKC levels. These data reveal that PHLPP controls the cellular levels of PKC by specifically dephosphorylating the hydrophobic motif, thus destabilizing the enzyme and promoting its degradation.Protein phosphorylation defines one of the most important and pervasive regulatory mechanisms in cell signaling. Crucial cellular decisions such as those between death or survival and proliferation or differentiation are made depending on the phosphorylation state of signaling molecules. Thus, precise control of the balance between phosphorylation and dephosphorylation is critical for living organisms to maintain normal physiological functions. Dysregulation of signaling pathways that results in disturbing this balance leads to the development of diseases such as cancer and diabetes. Loss of control of either phosphorylation or dephosphorylation mechanisms leads to pathogenic states, and both kinases and phosphatases have been identified as oncogenes or tumor suppressors (1).We have recently identified a novel family of Ser/Thr phosphatases, which we named PH domain leucine-rich repeat protein phosphatase (PHLPP) 3 based on domain composition (2, 3). PHLPP comprises three isozymes: the alternatively spliced PHLPP1␣ and PHLPP1, which differ in an amino-terminal extension on PHLPP1, and PHLPP2. PHLPP1 and PHLPP2 share 50% overall identity at the amino acid level. PHLPP1 and PHLPP2 contain a PP2C-like phosphatase domain and they dephosphorylate Akt in vitro in a Mn 2ϩ -dependent manner (2, 3). Althoug...