Estrogen receptors (ERs) are transcription factors that can be modulated by both estrogen-dependent and growth factor-dependent phosphorylation. A yeast two-hybrid screening identified a serine/threonine protein phosphatase (PP5) as an interactant of ERbeta (1-481), a dominant negative ERbeta mutant. Glutathione S-transferase pull-down assays, mammalian two-hybrid assays, and immunoprecipitation studies showed that PP5 directly binds to both ERalpha and ERbeta via its tetratricopeptide repeat domain. E domains of ERalpha and ERbeta, without containing activation domain core regions in transcription activation function 2, were required for the binding to PP5. In ERalpha-positive breast cancer MCF7 cells, estrogen- and epidermal growth factor-dependent phosphorylation of ERalpha on serine residue 118, a major phosphorylation site of the receptor, was reduced by expressing PP5 but enhanced by PP5 antisense oligonucleotide. Estrogen-induced transcriptional activities of both ERalpha and ERbeta and mRNA expression of estrogen-responsive genes, including pS2, c-myc, and cyclin D1, were suppressed by PP5 but enhanced by PP5 antisense oligonucleotide. A truncated PP5 mutant consisting only of its tetratricopeptide repeat domain acted as a dominant negative PP5 that enhanced serine residue 118 phosphorylation of ERalpha and transactivations by ERalpha and ERbeta. We present the first evidence that PP5 functions as an inhibitory regulator of ER phosphorylation and transcriptional activation in vivo.