Novel antifungal drugs and targets are urgently needed. Group III hybrid histidine kinases (HHKs) represent an appealing new therapeutic drug target because they are widely expressed in fungi but absent from humans. We investigated the mode of action of the widely utilized, effective fungicide fludioxonil. The drug acts in an HHK-dependent manner by constitutive activation of the HOG (highosmolarity glycerol) pathway, but its mechanism of action is poorly understood. Here, we report a new mode of drug action that entails conversion of the HHK from a kinase into a phosphatase. We expressed Drk1 (dimorphism-regulating kinase), which is an intracellular group III HHK from the fungal pathogen Blastomyces dermatitidis, in Saccharomyces cerevisiae. Drk1 engendered drug sensitivity in B. dermatitidis and conferred sensitivity upon S. cerevisiae. In response to fludioxonil, Drk1 behaved as a phosphatase rather than as a kinase, leading to dephosphorylation of its downstream target, Ypd1, constitutive activation of the HOG pathway, and yeast cell death. Aspartic acid residue 1140 in the Drk1 receiver domain was required for in vivo phosphatase activity on Ypd1, and Hog1 was required for drug effect, indicating fidelity in HHK-dependent drug action. In in vitro assays with purified protein, intact Drk1 demonstrated intrinsic kinase activity, and the Drk1 receiver domain exhibited intrinsic phosphatase activity. However, fludioxonil failed to induce intact Drk1 to dephosphorylate Ypd1. We conclude that fludioxonil treatment in vivo likely acts on an upstream target that triggers HHK to become a phosphatase, which dephosphorylates its downstream target, Ypd1.