The sequences of two genes encoding the protein-serine/threonine-phosphatases PPZ1 and PPZ2 from Saccharomyces cerevisiae have been determined. The molecular masses of PPZ1 and PPZ2 are 77.5 and 78.5 kDa, respectively, and each protein consists of two distinct domains. The C-terminal half of each molecule is 93% identical in PPZ1 and PPZ2, and comprises the protein-phosphatase catalytic domain, while the N-terminal halves, which are rich in serine and asparagine (PPZ1) or serine and arginine (PPZ2), are only 43% identical. Both N-termini start with the amino acids Met-Gly-Asn, suggesting that after removal of the initiating methionine, the N-terminal glycine of the mature protein is myristoylated. Disruption of the gene encoding either PPZ1 or PPZ2 leads to an increase in cell size and cell lysis, the latter being more pronounced in cells disrupted in PPZ1. Haploid cells carrying a double disruption of PPZ1 and PPZ2 genes also show a marked increase in cell size and cell lysis, which can be significantly reduced by the addition of 1 M sorbitol to the growth medium. These results suggest that PPZ1 and PPZ2 play a role in regulating osmotic stability.