The novel type, fungus specific protein phosphatase Z1 of the opportunistic pathogen, Candida albicans (CaPpz1) has several important physiological roles. It consists of a conserved C-terminal catalytic domain and a variable, intrinsically disordered, N-terminal regulatory domain. To test the function of these domains we modified the structure of CaPpz1 by in vitro mutagenesis. The two main domains were separated, four potential protein binding regions were deleted, and the myristoylation site as well as the active site of the enzyme was crippled by point mutations G2A and R262L, respectively. The in vitro phosphatase activity assay of the bacterially expressed recombinant proteins indicated that the N-terminal domain was inactive, while the C-terminal domain became highly active against myosin light chain substrate. The deletion of the N-terminal 1-16 amino acids and the G2A mutation significantly decreased the specific activity of the enzyme. Complementation of the ppz1 Saccharomyces cerevisiae deletion mutant strain with the different CaPpz1 forms demonstrated that the scission of the main domains, the two point mutations and the N-terminal 1-16 deletion rendered the phosphatase incompetent in the in vivo assays of LiCl tolerance and caffeine sensitivity. Thus our results confirmed the functional role of the N-terminal domain and highlighted the significance of the very N-terminal part of the protein in the regulation of CaPpz1.