Protein kinases and protein phosphatases exert coordinated control over many essential cellular processes. Here, we describe the cloning and characterization of a novel human transmembrane protein KPI-2 (Kinase/Phosphatase/Inhibitor-2) that was identified by yeast two-hybrid using protein phosphatase inhibitor-2 (Inh2) as bait. KPI-2 mRNA was predominantly expressed in skeletal muscle. KPI-2 is a 1503-residue protein with two predicted transmembrane helices at the N terminus, a kinase domain, followed by a C-terminal domain. The transmembrane helices were sufficient for targeting proteins to the membrane. KPI-2 kinase domain has about 60% identity with its closest relative, a tyrosine kinase. However, it only exhibited serine/threonine kinase activity in autophosphorylation reactions or with added substrates. KPI-2 kinase domain phosphorylated protein phosphatase-1 (PP1C) at Thr(320), which attenuated PP1C activity. KPI-2 C-terminal domain directly associated with PP1C, and this required a VTF motif. Inh2 associated with KPI-2 C-terminal domain with and without PP1C. Thus, KPI-2 is a kinase with sites to associate with PP1C and Inh2 to form a regulatory complex that is localized to membranes.