Protein phosphatase 2C∈ (PP2C∈), a mammalian PP2C family member, is expressed in various tissues and is implicated in the negative regulation of stress-activated protein kinase pathways. We show that PP2C∈ is an endoplasmic reticulum (ER) transmembrane protein with a transmembrane domain at the amino terminus and the catalytic domain facing the cytoplasm. Yeast two-hybrid screening of a human brain library using PP2C∈ as bait resulted in the isolation of a cDNA that encoded vesicle-associated membrane protein-associated protein A (VAPA). VAPA is an ER resident integral membrane protein involved in recruiting lipid-binding proteins such as the ceramide transport protein CERT to the ER membrane. Expression of PP2C∈ resulted in dephosphorylation of CERT in a VAPA expression-dependent manner, which was accompanied by redistribution of CERT from the cytoplasm to the Golgi apparatus. The expression of PP2C∈ also enhanced the association between CERT and VAPA. In addition, knockdown of PP2C∈ expression by short interference RNA attenuated the interaction between CERT and VAPA and the sphingomyelin synthesis. These results suggest that CERT is a physiological substrate of PP2C∈ and that dephosphorylation of CERT by PP2C∈ may play an important role in the regulation of ceramide trafficking from the ER to the Golgi apparatus.