Dephosphorylation of actin-binding proteins by a specialized form of protein Ser/Thr phosphatase type-1 (PP1) regulates smooth muscle contraction and morphology and motility of nonmuscle cells. This myosin and ezrin/radixin/moesin (ERM)-targeted phosphatase comprises the delta isoform PP1 catalytic subunit plus a primary regulatory subunit called myosin phosphatase targeting (MYPT1). We reconstructed myosin/ERM phosphatase in living rat embryo fibroblasts (REF52 cells) by transient expression of epitope-tagged MYPT1 (myc-MYPT1) plus HA-tagged PP1. Unexpectedly, wild-type myc-MYPT1 expressed alone accumulated predominantly in the nucleus, as visualized by immunofluorescent microscopy, whereas if coexpressed with HA-PP1, it was localized in the cytosol and deposited on cytoskeleton myofilaments. The F38A mutation of MYPT1 that eliminates PP1 binding gave nuclear localization of myc-MYPT1, even when coexpressed with HA-PP1. Thus, expression of both subunits was necessary to form myosin/ERM phosphatase in situ and mediate myofilament localization. The results indicate there is little endogenous PP1 available for interaction or interchange with ectopic regulatory subunits in living cells. We concluded that myosin binding by the C-terminal domain of MYPT1 is not sufficient to override nuclear import in fibroblasts, but the binding of PP1 to myc-MYPT1 neutralizes nuclear import. Full-length myc-MYPT1 plus HA-PP1 induced only subtle changes in organization of the actin cytoskeleton, however coexpression of myc-MYPT1(1-300) with HA-PP1 dispersed stress fibers without major alteration in morphology and myc-MYPT1(1-498) disrupted the cytoskeleton and produced radically extended cells that appeared like neurons. Based on these responses, we conclude that the MYPT1 C-terminus functions as an auto-inhibitory domain, and a central domain in MYPT1 can mediate extensive reorganization of the actin cytoskeleton.