The polyisoprenoid diphosphates farnesyl diphosphate (FPP) and geranylgeranyl diphosphate (GGPP) are intermediates in the synthesis of cholesterol and related sterols by the mevalonate pathway and precursors for the addition of isoprenyl anchors to many membrane proteins. We developed tandem mass spectrometry assays to evaluate polyisoprenoid diphosphate phosphatase activity of an unusual integral membrane lipid enzyme: type 1 polyisoprenoid diphosphate phosphatase encoded by the PPAPDC2 gene (PDP1/PPAPDC2). In vitro, recombinant PDP1/PPAPDC2 preferentially hydrolyzed polyisoprenoid diphosphates, including FPP and GGPP over a variety of glycerol- and sphingo-phospholipid substrates. Overexpression of mammalian PDP1/PPAPDC2 in budding yeast depletes cellular pools of FPP leading to growth defects and sterol auxotrophy. In mammalian cells, PDP1/PPAPDC2 localizes to the endoplasmic reticulum and nuclear envelope and, unlike the structurally related lipid phosphate phosphatases, is predicted to be oriented with key residues of its catalytic domain facing the cytoplasmic face of the membrane. Studies using synthetic isoprenols with chemical properties that facilitate detection by mass spectrometry identify a pathway for interconversion of isoprenols and isoprenoid diphosphates in intact mammalian cells and demonstrate a role for PDP1/PPAPDC2 in this process. Overexpression of PDP1/PPAPDC2 in mammalian cells substantially decreases protein isoprenylation and results in defects in cell growth and cytoskeletal organization that are associated with dysregulation of Rho family GTPases. Taken together, these results focus attention on integral membrane lipid phosphatases as regulators of isoprenoid phosphate metabolism and suggest that PDP1/PPAPDC2 is a functional isoprenoid diphosphate phosphatase.