Akt is constitutively activated in up to 70% of human melanomas and has an important role in the pathogenesis of the disease. However, little is known about protein phosphatases that dephosphorylate and thereby inactivate it in melanoma cells. Here we report that suppression of pleckstrin homology domain and leucine-rich repeat Ser/Thr protein phosphatase 1 (PHLPP1) by DNA methylation promotes Akt activation and has an oncogenic role in melanoma. While it is commonly downregulated, overexpression of PHLPP1 reduces Akt activation and inhibits melanoma cell proliferation in vitro, and retards melanoma growth in a xenograft model. In contrast, knockdown of PHLPP1 increases Akt activation, enhances melanoma cell and melanocyte proliferation, and results in anchorage-independent growth of melanocytes. Suppression of PHLPP1 involves blockade of binding of the transcription factor Sp1 to the PHLPP1 promoter. Collectively, these results suggest that suppression of PHLPP1 by DNA methylation contributes to melanoma development and progression.