Phosphorylation has been implicated in the regulation of microtubule (MT) stability and function by controlling the interactions between MTs and MT-associated proteins. We found previously that protein phosphatase inhibitors selectively break down stable MTs, suggesting that protein phosphatases may be involved in regulating MT stability. To identify the protein phosphatases involved, we examined purified calf brain MTs and found a protein phosphatase activity that copurified with MTs to constant stoichiometry. Western blot analysis and inhibitor profiles demonstrated that the MT-associated phosphatase was a type 1 protein phosphatase (PP1), which we named PP1MT. Recombinant PP1 catalytic subunit (PP1c) did not bind to MTs, whereas PP1MT did bind, suggesting the presence of proteins that target PP1 to MTs. By Sepharose CL-6B chromatography, the phosphatase activity of PP1MT eluted as a large protein complex of approximately 400 kDa. High salt (2 M NaCl) treatment followed by CL-6B chromatography dissociated PP1MT into PP1c and the MT-targeting subunit(s). The MT-targeting subunit was shown to be the MT-associated protein tau by PP1 blot overlays and other assays. Also, recombinant tau reconstituted the binding of PP1c to MTs. These results identify PP1 as the first tau binding protein and suggest that tau is a novel PP1-targeting subunit.