Yeast ptc1 mutants are rapamycin and caffeine sensitive, suggesting a functional connection between Ptc1 and the TOR pathway that is not shared by most members of the type 2C phosphatase family. Genome-wide profiling revealed that the ptc1 mutation largely attenuates the transcriptional response to rapamycin. The lack of Ptc1 significantly prevents the nuclear translocation of Gln3 and Msn2 transcription factors to the nucleus, as well as the dephosphorylation of the Npr1 kinase, in response to rapamycin. This could explain the observed decrease in both the basal and rapamycin-induced expression of several genes subjected to nitrogen catabolite repression (GAT1, MEP1, and GLN1) and stress response element (STRE)-driven promoters. Interestingly, this decrease is abolished in the absence of the Sit4 phosphatase. Epitasis analysis indicates that the mutation of SIT4 or TIP41, encoding a Tap42-interacting protein, abolishes the sensitivity of the ptc1 strain to rapamycin and caffeine. All of these results suggest that Ptc1 is required for normal TOR signaling, possibly by regulating a step upstream of Sit4 function. According to this hypothesis, we observe that the mutation of PTC1 drastically diminishes the rapamycin-induced interaction between Tap42 and Tip41, and this can be explained by lower-than-normal levels of Tip41 in ptc1 cells. Ptc1 is not necessary for the normal expression of the TIP41 gene; instead, its absence dramatically affects the stability of Tip41. The lack of Ptc1 partially abolishes the rapamycin-induced dephosphorylation of Tip41, which may further decrease Tap42 binding. Reduced Tip41 levels contribute to the ptc1 phenotypes, although additional Ptc1 targets must exist. All of these results provide the first evidence showing that a type 2C protein phosphatase is required for the normal functioning of the TOR pathway. Copyright © 2009, American Society for Microbiology. All Rights Reserved.