Catalase (CAT) is often phosphorylated and activated by protein kinases to maintain hydrogen peroxide (H2O2) homeostasis and protect cells against stresses, but whether and how CAT is switched off by protein phosphatases remains inconclusive. Here, we identified a manganese (Mn2+)-dependent protein phosphatase, which we named PHOSPHATASE OF CATALASE 1 (PC1), from rice (Oryza sativa L.) that negatively regulates salt and oxidative stress tolerance. PC1 specifically dephosphorylates CatC at Ser-9 to inhibit its tetramerization and thus activity in the peroxisome. PC1 overexpressing lines exhibited hypersensitivity to salt and oxidative stresses with a lower phospho-serine level of CATs. Phosphatase activity and seminal root growth assays indicated that PC1 promotes growth and plays a vital role during the transition from salt stress to normal growth conditions. Our findings demonstrate that PC1 acts as a molecular switch to dephosphorylate and deactivate CatC and negatively regulate H2O2 homeostasis and salt tolerance in rice. Moreover, knockout of PC1 not only improved H2O2-scavenging capacity and salt tolerance, but also limited rice grain yield loss under salt stress conditions. Together, these results shed light on the mechanisms that switch off CAT and provide a strategy for breeding highly salt-tolerant rice.