Myxococcus xanthus is a Gram-negative bacterium with a complex life cycle that includes vegetative swarming on rich medium and, upon starvation, aggregation to form fruiting bodies containing spores. Both of these behaviours require multiple Ser/Thr protein kinases. In this paper, we report the first Ser/Thr protein phosphatase gene, pph1, from M. xanthus. DNA sequence analysis of pph1 indicates that it encodes a protein of 254 residues (Mr = 28 308) with strong homology to eukaryotic PP2C phosphatases and that it belongs to a new group of bacterial protein phosphatases that are distinct from bacterial PP2C phosphatases such as RsbU, RsbX and SpoIIE. Recombinant His-tagged Pph1 was purified from Escherichia coli and shown to have Mn2+ or Mg2+ dependent, okadaic acid-resistant phosphatase activity on a synthetic phosphorylated peptide, RRA(pT)VA, indicating that Pph1 is a PP2C phosphatase. Pph1-expression was observed under both vegetative and developmental conditions, but peaked during early aggregation. A pph1 null mutant showed defects during late vegetative growth, swarming and glycerol spore formation. Under starvation-induced developmental conditions, the mutant showed reduced aggregation and failure to form fruiting bodies with viable spores. Using the yeast two-hybrid system, we have observed a strong interaction between Pph1 and the M. xanthus protein kinase Pkn5, a negative effector of development. These results suggest a functional link between a Pkn2-type protein kinase and a PP2C phosphatase.