C-terminal Domain Nuclear Envelope Phosphatase 1 (CTDNEP1) is a non-canonical protein serine/threonine phosphatase that regulates ER membrane biogenesis. Inactivating mutations in CTDNEP1 correlate with development of medulloblastoma, an aggressive childhood cancer. The transmembrane protein Nuclear Envelope Phosphatase 1 Regulatory Subunit 1 (NEP1R1) binds CTDNEP1, but the molecular details by which NEP1R1 regulates CTDNEP1 function are unclear. Here, we find that knockdown of CTDNEP1 or NEP1R1 in human cells generate identical phenotypes, establishing CTDNEP1-NEP1R1 as an evolutionarily conserved membrane protein phosphatase complex that restricts ER expansion. Mechanistically, NEP1R1 acts as an activating regulatory subunit that directly binds and increases the phosphatase activity of CTDNEP1. By defining a minimal NEP1R1 domain sufficient to activate CTDNEP1, we determine high resolution crystal structures of the CTDNEP1-NEP1R1 complex bound to a pseudo-substrate. Structurally, NEP1R1 engages CTDNEP1 at a site distant from the active site to stabilize and allosterically activate CTDNEP1. Substrate recognition is facilitated by a conserved Arg residue that binds and orients the substrate peptide in the active site. Together, this reveals mechanisms for how NEP1R1 regulates CTDNEP1 and explains how cancer-associated mutations inactivate CTDNEP1.