The mitogen-activated protein kinase (MAPK) also known as extracellular signal-regulated kinase (ERK) plays a crucial role in various signal transduction pathways. ERK is activated by its upstream activator, MEK, via threonine and tyrosine phosphorylation. ERK activity in the cell is tightly regulated by phosphorylation and dephosphorylation. Here we report the cloning and characterization of a novel dual specific phosphatase, HVH2, which may function in vivo as a MAP kinase phosphatase. The deduced amino acid sequence of HVH2 shows significant identity to the VH1-related dual specific phosphatase family. In addition, the N-terminal region of HVH2 also displays sequence identity to the cell cycle regulator, Cdc25 phosphatase. Recombinant HVH2 phosphatase exhibited a high substrate specificity toward activated ERK and dephosphorylated both threonine and tyrosine residues of activated ERK1 and ERK2. Immunofluorescence studies with an epitope-tagged HVH2 showed that the enzyme was localized in cell nucleus. Transfection of HVH2 into NIH3T3 cells inhibited the v-src and MEK-induced transcriptional activation of serum-responsive element containing promoter, consistent with the notion that HVH2 promotes the inactivation of MAP kinase. HVH2 mRNA showed an expression pattern distinct from CL100 (human homologue of mouse MKP1) and PAC1, two previously identified MAP kinase phosphatases. Our data suggest a possible role of HVH2 in MAP kinase regulation.