Reversible protein phosphorylation is an important mode of regulation of cellular processes. While earlier studies focused on protein kinases, it is now apparent that protein phosphatases play an equally integral role in the control of cellular phosphoproteins. This review examines the role played by endogenous inhibitors of three major protein serine/threonine phosphatases, PP1, PP2A and PP2B in the control of cell physiology. The discussion highlights novel paradigms for signal transduction by protein phosphatase inhibitors that provide important avenues for signal amplification, the timing of physiological responses and cross-talk between distinct signal transduction pathways. New evidence also points to genetic abnormalities or altered expression of phosphatase inhibitors as potential mechanisms for human disease. Together, the data emphasize the physiological importance of protein phosphatase inhibitors and establish phosphatase regulation as a key feature of hormone signaling.