The proliferation of many estrogen receptor (ER)-positive breast cancer cells depends on estradiol, and tumors arising from these cells are often responsive initially to treatment with selective ER modulators, which produce an antiestrogen effect. However, tumors that are refractory to the antiestrogenic effects of selective ER modulators often reemerge, and the prognosis for these patients is poor because of the lack of additional effective therapy. Accordingly, deciphering the cellular events associated with estrogen-dependent growth and the subsequent outgrowth of tumors with an estrogen-independent phenotype is of considerable interest. Here we show that the expression of PP5, an evolutionarily conserved Ser/Thr phosphatase that functions as an inhibitor of glucocorticoid- and p53-induced signaling cascades leading to growth suppression, is responsive to 17beta-estradiol (E(2)) in ER-positive human breast carcinoma cells (MCF-7). Northern analysis revealed that E(2)-induced PP5 expression is blocked by treatment with tamoxifen, and a consensus ER recognition element was identified in the PP5 promoter. The PP5-ER recognition element associates with human ERs and confers E(2)-induced transcriptional activation to reporter plasmids. The specific inhibition of PP5 expression ablates E(2)-mediated proliferation in MCF-7 cells without having an apparent effect on E(2)-induced expression of c-myc or cyclin D1. Thus, although critical for cell growth, PP5 likely acts either downstream or independently of c-Myc and Cyclin D1. To further characterize the role of PP5 in E(2)-regulated growth control, we constructed stable MCF-7 cell lines in which the expression of PP5 was placed under the control of tetracycline-regulated transactivator and operator plasmids. Studies with these cells revealed that the constitutive overexpression of PP5 affords E(2)-dependent MCF-7 cells with the ability to proliferate in E(2)-depleted media. Together, these studies indicate that E(2)-induced PP5 expression functions to enhance E(2)-initiated signaling cascades leading to cell division and that aberrant PP5 expression may contribute to the development of MCF-7 cells with an estrogen-independent phenotype.