Pheromone-stimulated yeast cells and haploid gpa1 deletion mutants arrest their cell cycle in G1. Overexpression of a novel gene called MSG5 suppresses this inhibition of cell division. Loss of MSG5 function leads to a diminished adaptive response to pheromone. Genetic analysis indicates that MSG5 acts at a stage where the protein kinases STE7 and FUS3 function to transmit the pheromone-induced signal. Since loss of MSG5 function causes an increase in FUS3 enzyme activity but not STE7 activity, we propose that MSG5 impinges on the pathway at FUS3. Sequence analysis suggests that MSG5 encodes a protein tyrosine phosphatase. This is supported by the finding that recombinant MSG5 has phosphatase activity in vitro and is able to inactivate autophosphorylated FUS3. Thus MSG5 might stimulate recovery from pheromone by regulating the phosphorylation state of FUS3.