The life cycle of protein kinase C (PKC) is controlled by multiple phosphorylation and dephosphorylation steps. The maturation of PKC requires three ordered phosphorylations, one at the activation loop and two at COOH-terminal sites, the turn motif and the hydrophobic motif, to yield a stable and signaling-competent enzyme. Dephosphorylation of the enzyme leads to protein degradation. We have recently discovered a novel family of protein phosphatases named PH domain leucine-rich repeat protein phosphatase (PHLPP) whose members terminate Akt signaling by dephosphorylating the hydrophobic motif on Akt. Here we show that the two PHLPP isoforms, PHLPP1 and PHLPP2, also dephosphorylate the hydrophobic motif on PKC betaII, an event that shunts PKC to the detergent-insoluble fraction, effectively terminating its life cycle. Deletion mutagenesis reveals that the PH domain is necessary for the effective dephosphorylation of PKC betaII by PHLPP in cells, whereas the PDZ-binding motif, required for Akt regulation, is dispensable. The phorbol ester-mediated dephosphorylation of the hydrophobic site, but not the turn motif or activation loop, is insensitive to okadaic acid, consistent with PHLPP, a PP2C family member, controlling the hydrophobic site. In addition, knockdown of PHLPP expression reduces the rate of phorbol ester-triggered dephosphorylation of the hydrophobic motif, but not turn motif, of PKC alpha. Last, we show that depletion of PHLPP in colon cancer and normal breast epithelial cells results in an increase in conventional and novel PKC levels. These data reveal that PHLPP controls the cellular levels of PKC by specifically dephosphorylating the hydrophobic motif, thus destabilizing the enzyme and promoting its degradation.