The human immunodeficiency virus (HIV) encodes a gene product, Vpr, which causes infected cells to arrest or delay in the G2 phase of the cell cycle. The arrest in G2 is characterized by low levels of Cyclin B1-p34Cdc2 activity and corresponding inhibitory phosphorylation of p34Cdc2. We find that Vpr directly inhibits the in vitro activity of a phosphatase, Cdc25C, which normally activates Cyclin B1-p34Cdc2. Vpr binds to Cdc25C both in vitro and in mammalian cells. Vpr is also able to inhibit Cdc25C phosphatase activity in vitro although it binds to a site on Cdc25C that is distinct from the catalytic site of the enzyme. Expression of both a catalytically active mutant of Cdc25C that has reduced binding to Vpr as well as a catalytically inactive mutant of Cdc25C that retains binding to Vpr is able to largely overcome Vpr-mediated G2 arrest. Finally, depletion of Cdc25C from cells also renders them partially resistant to the effects of Vpr.