Perception of extracellular signals by cell surface receptors is of central importance to eukaryotic development and immunity. Kinases that are associated with the receptors or are part of the receptors themselves modulate signaling through phosphorylation events. The rice (Oryza sativa L.) XA21 receptor kinase is a key recognition and signaling determinant in the innate immune response. A yeast two-hybrid screen using the intracellular portion of XA21, including the juxtamembrane (JM) and kinase domain as bait, identified a protein phosphatase 2C (PP2C), called XA21 binding protein 15 (XB15). The interaction of XA21 and XB15 was confirmed in vitro and in vivo by glutathione-S-transferase (GST) pull-down and co-immunoprecipitation assays, respectively. XB15 fusion proteins purified from Escherichia coli and from transgenic rice carry PP2C activity. Autophosphorylated XA21 can be dephosphorylated by XB15 in a temporal- and dosage-dependent manner. A serine residue in the XA21 JM domain is required for XB15 binding. Xb15 mutants display a severe cell death phenotype, induction of pathogenesis-related genes, and enhanced XA21-mediated resistance. Overexpression of Xb15 in an XA21 rice line compromises resistance to the bacterial pathogen Xanthomonas oryzae pv. oryzae. These results demonstrate that Xb15 encodes a PP2C that negatively regulates the XA21-mediated innate immune response.