We have documented that a cellular chaperone protein, FKBP52, when phosphorylated at tyrosine and/or serine/threonine (Ser/Thr) residues, interacts with the D-sequence in the inverted terminal repeats of the adeno-associated virus 2 (AAV) genome, inhibits the viral second-strand DNA synthesis, and leads to inefficient transgene expression from recombinant AAV vectors in certain cell types. We have also demonstrated that FKBP52 is dephosphorylated at tyrosine residues by T-cell protein tyrosine phosphatase (TC-PTP), and that deliberate overexpression of TC-PTP leads to more efficient viral second-strand DNA synthesis, and increased transgene expression. However, the identity of the putative Ser/Thr protein phosphatase that dephosphorylates FKBP52 at Ser/Thr residues has remained elusive. Using known inhibitors of Ser/Thr phosphatases, we have now identified protein phosphatase 5 (PP5) to be a candidate enzyme. Deliberate overexpression of PP5 in 293 cells, which does not influence cellular growth, leads to approximately 5-fold increase in the transduction efficiency of conventional single-stranded AAV vectors, but no significant enhancement in the transduction efficiency of self-complementary AAV vectors, suggesting that PP5 plays a role in AAV second-strand DNA synthesis. Electrophoretic mobility-shift assays show that in cells overexpressing PP5, the extent of the complex formation between FKBP52 and the AAV D-sequence is significantly reduced. These studies suggest that PP5-mediated dephosphorylation of FKBP52 at Ser/Thr residues augments viral second-strand DNA synthesis and enhances AAV transduction efficiency, which has implications in the optimal use of these vectors in human gene therapy.