The opportunistic pathogen Candida albicans has a single protein phosphatase Z (PPZ) candidate gene termed CaPPZ1, which shows significant allele variability. We demonstrate here that bacterially expressed CaPpz1 protein exhibits phosphatase activity which can be inhibited by recombinant Hal3, a known inhibitor of Saccharomyces cerevisiae Ppz1. Site-directed mutagenesis experiments based on natural polymorphisms allowed the identification of three amino acid residues that affect enzyme activity or stability. The expression of CaPPZ1 in ppz1 S. cerevisiae and pzh1 Schizosaccharomyces pombe cells partially rescued the salt and caffeine phenotypes of the deletion mutants. CaPpz1 also complemented the slt2 S. cerevisiae mutant, which is crippled in the mitogen-activated protein (MAP) kinase that mediates the cell wall integrity signalling pathway. Collectively, our results suggest that the orthologous PPZ enzymes have similar but not identical functions in different fungi. The deletion of the CaPPZ1 gene in C. albicans resulted in a mutant that was sensitive to salts such as LiCl and KCl, to caffeine, and to agents that affect cell wall biogenesis such as Calcofluor White and Congo red, but was tolerant to spermine and hygromycin B. Reintegration of the CaPPZ1 gene into the deletion mutant alleviated all of the mutant phenotypes tested. Thus CaPpz1 is involved in cation homeostasis, cell wall integrity and the regulation of the membrane potential of C. albicans. In addition, the germ tube growth rate, and virulence in the BALB/c mouse model, were reduced in the null mutant, suggesting a novel function for CaPpz1 in the yeast to hypha transition that may have medical relevance.