The essential CDC14 gene of the budding yeast, Saccharomyces cerevisiae, encodes a 62-kDa protein containing a sequence that conforms to the active site motif found in all enzymes of the protein tyrosine phosphatase superfamily. Genetic studies suggest that Cdc14p may be involved in the initiation of DNA replication, but its precise cell cycle function is unknown. Recombinant Cdc14p was produced in bacteria, characterized, and shown to be a dual specificity protein phosphatase. Polyanions such as polyglutamate and double-stranded and single-stranded DNA bind to Cdc14p and affect its activity. Native molecular weights of 131,000 and 169,000 determined by two independent methods indicate that recombinant Cdc14p self-associates in vitro to form active oligomers. The catalytically inactive Cdc14p C283S/R289A mutant is not able to suppress the temperature sensitivity of a cdc14-1(ts) mutant nor replace the wild type gene in vivo, demonstrating that phosphatase activity is required for the cell cycle function of Cdc14p. A distinctive COOH-terminal segment (residues 375-551) is rich in Asn and Ser residues, carries a net positive charge, and contains two tandem 21-residue repeats. This COOH-terminal segment is not required for activity, for oligomerization, or for the critical cell cycle function of Cdc14p.