The serine/threonine phosphatase protein phosphatase 5 (PP5) regulates hormone-and stress-induced cellular signaling by association with the molecular chaperone heat shock protein 90 (Hsp90). PP5-mediated dephosphorylation of the cochaperone Cdc37 is essential for activation of Hsp90-dependent kinases. However, the details of this mechanism remain unknown. We determined the crystal structure of a Cdc37 phosphomimetic peptide bound to the catalytic domain of PP5. The structure reveals PP5 utilization of conserved elements of phosphoprotein phosphatase (PPP) structure to bind substrate and provides a template for many PPP-substrate interactions. Our data show that, despite a highly conserved structure, elements of substrate specificity are determined within the phosphatase catalytic domain itself. Structure-based mutations in vivo reveal that PP5-mediated dephosphorylation is required for kinase and steroid hormone receptor release from the chaperone complex. Finally, our data show that hyper-or hypoactivity of PP5 mutants increases Hsp90 binding to its inhibitor, suggesting a mechanism to enhance the efficacy of Hsp90 inhibitors by regulation of PP5 activity in tumors.Hsp90 | PP5 | Cdc37 | chaperone | phosphatase P rotein phosphatase 5 (PP5) has pleiotropic roles in cellular signaling, including DNA damage repair, proliferation of breast cancer cells, circadian cycling, response to cytotoxic stresses, Rac-dependent potassium ion channel activity, and activation of steroid hormone receptors [e.g., glucocorticoid receptor (GR) and estrogen receptor] (1, 2). It is a member of the phosphoprotein phosphatase (PPP) family of serine/threonine phosphatases, which has members that share a highly conserved catalytic core and catalytic mechanism dependent on two metal ions, commonly Mn 2+ . Most PPP family members exhibit high, nonspecific phosphatase activity. Specificity is provided by a large cohort of regulatory and other interacting proteins that function to inhibit basal activity and recruit substrates, thereby finely tuning the enzymes (3). This combinatorial approach enables a small number of catalytic subunits to have the breadth of specificity equivalent to that seen in kinases, which are greater in number by an order of magnitude. Structures of complexes between regulatory and catalytic domains have illuminated the importance of regulatory subunits in facilitating substrate recruitment (3). However, to date, there is no structural information describing how a substrate binds at the active site of a PPP; therefore, a central question remains of how local interactions between the substrate and the catalytic domain contribute to the molecular basis of dephosphorylation.PP5 is unique among the PPP family because it has a low basal activity caused by an autoinhibitory N-terminal tetratricopeptide (TPR) domain (4). Its activity is promoted by a number of cellular factors, including fatty acids and the molecular chaperone heat shock protein 90 (Hsp90) (5), both of which release autoinhibition by interacting with the TPR...