The Groucho-associated phosphatase PPM1B displaces Pax transactivation domain interacting protein (PTIP) to switch the transcription factor Pax2 from a transcriptional activator to a repressor.

Pax genes encode developmental regulatory proteins that specify cell lineages and tissues in metazoans. Upon binding to DNA through the conserved paired domain, Pax proteins can recruit both activating and repressing complexes that imprint distinct patterns of histone methylation associated with either gene activation or silencing. How the switch from Pax-mediated activation to repression is regulated remains poorly understood. In this report, we identify the phosphatase PPM1B as an essential component of the Groucho4 repressor complex that is recruited by Pax2 to chromatin. PPM1B can dephosphorylate the Pax2 activation domain and displace the adaptor protein PTIP, thus inhibiting H3K4 methylation and gene activation. Loss of PPM1B prevents Groucho-mediated gene repression. Thus, PPM1B helps switch Pax2 from a transcriptional activator to a repressor protein. This can have profound implications for developmental regulation by Pax proteins and suggests a model for imprinting specific epigenetic marks depending on the availability of co-factors.