We present here the identification and characterization of an SCP3 (small C-terminal domain phosphatase-3) homologue in smooth muscle and show, for the first time, that it dephosphorylates CaMKII [Ca(2+)/CaM (calmodulin)-dependent protein kinase II]. SCP3 is a PP2C (protein phosphatase 2C)-type phosphatase that is primarily expressed in vascular smooth muscle tissues and specifically binds to the association domain of the CaMKIIgamma G-2 variant. The dephosphorylation is site-specific, excluding the Thr(287) associated with Ca(2+)/CaM-independent activation of the kinase. As a result, the autonomous activity of CaMKIIgamma G-2 is not affected by the phosphatase activity of SCP3. SCP3 co-localizes with CaMKIIgamma G-2 on cytoskeletal filaments, but is excluded from the nucleus in differentiated vascular smooth muscle cells. Upon depolarization-induced Ca(2+) influx, CaMKIIgamma G-2 is activated and dissociates from SCP3. Subsequently, CaMKIIgamma G-2 is targeted to cortical adhesion plaques. We show here that SCP3 regulates phosphorylation sites in the catalytic domain, but not those involved in regulation of kinase activation. This selective dephosphorylation by SCP3 creates a constitutively active kinase that can then be differentially regulated by other phosphorylation-dependent regulatory mechanisms.