Intracellular signalling following mitogenic stimulation of quiescent cells involves the initiation of a phosphorylation cascade that leads to the rapid and reversible activation of the mitogen-activated protein (MAP) kinases ERK1 and ERK2. MAP kinase activation is mediated by dual phosphorylation within the motif Thr-Glu-Tyr by MAP kinase kinase (MEK). Following activation, the MAP kinases translocate into the nucleus where they phosphorylate several transduction targets, including transcription factors. We have previously identified PAC1 as an immediate-early mitogen-inducible tyrosine phosphatase in nuclei of T cells. Here we present several lines of evidence indicating that PAC1 is a physiologically relevant MAP kinase phosphatase. Recombinant PAC1 in vitro is a dual-specific Thr/Tyr phosphatase with stringent substrate specificity for MAP kinase. Constitutive expression of PAC1 in vivo leads to inhibition of MAP kinase activity normally stimulated by epidermal growth factor, phorbol myristyl acetate, or T-cell receptor crosslinking. The inactivation of MAP kinase by PAC1 results in inhibition of MAP kinase-regulated reporter gene expression.