We have observed that soluble extracts from the extreme acidothermophilic archaebacterium Sulfolobus solfataricus contained protein phosphatase activity that was greatly stimulated by the divalent metal ions Mn2+, Mg2+, Ni2+, or Co2+. This activity apparently arose from a single enzyme since (a) stimulation by these divalent metal ions was not additive and (b) protein phosphatase activity eluted as a single peak from both a DE52 ion-exchange column and a Sephadex G-100 gel filtration column. Its apparent molecular mass was approximately 28,000 daltons. The enzyme dephosphorylated a variety of phosphoserine-containing substrates including casein, histone H2a, phosphorylase kinase, or glycogen phosphorylase. The enzyme would not dephosphorylate either histone H1 or a number of phosphotyrosine-containing compounds. It removed only half the phosphate bound to histone H2b, which is phosphorylated at two sites by the cAMP-dependent protein kinase. Protein phosphatase activity was inhibited by EDTA, Cu2+, Zn2+, NaF, inorganic phosphate, or pyrophosphate; but was unaffected by other potential activators and inhibitors such as microcystin, okadaic acid, vanadate, polyamines, or sulfhydryl modifying reagents. This enzyme represents the first protein phosphatase to be identified in any member of the third and oldest phylogenetic kingdom in nature, the archaebacteria.