Abstract: Yeast ptc1 mutants are rapamycin and caffeine-sensitive, suggesting a functional connection between Ptc1 and the TOR pathway that is not shared by most members of the type 2C phosphatase family. Genome-wide profiling revealed that the ptc1 mutation largely attenuates the transcriptional response to rapamycin. Lack of Ptc1 significantly prevents nuclear translocation of Gln3 and Msn2 transcription factors to the nucleus, as well as dephosphorylation of the Npr1 kinase, in response to rapamycin. This could explain the observed decrease in both basal and rapamycin-induced expression of several genes subjected to Nitrogen Catabolite Repression (GAT1, MEP1 and GLN1) and STRE-driven promoters. Interestingly, this decrease is abolished in the absence of the Sit4 phosphatase. Epitasis analysis indicates that mutations of SIT4 or TIP41, encoding a Tap42-interacting protein, abolish the sensitivity to rapamycin and caffeine of the ptc1 strain. All these results suggest that Ptc1 is required for normal TOR signaling, possibly by regulating a step upstream Sit4 function. According to this hypothesis, we observe that mutation of PTC1 drastically diminishes rapamycin-induced interaction between Tap42 and Tip41, and this can be explained by lower-than-normal levels of Tip41 in ptc1 cells. Ptc1 is not necessary for normal expression of the TIP41 gene but, instead, its absence dramatically affects the stability of Tip41. Lack of Ptc1 partially abolishes rapamycin-induced dephosphorylation of Tip41, which may further decrease Tap42 binding. Reduced Tip41 levels contribute to the ptc1 phenotypes, although additional Ptc1 targets must exist. All these results provide the first evidence showing that a type 2C protein phosphatase is required for normal function of the TOR pathway.