Protein phosphatase magnesium-dependent 1, delta (PPM1D) is a member of the PPM1 (formerly PP2C) protein phosphatase family, and is induced in response to DNA damage. The overexpression of PPM1D is thought to exert oncogenic effects through the inhibition of tumor suppressor proteins. PPM1D shows high selectivity for the primary sequence in its substrates when compared with other phosphatases, but the mechanisms underlying substrate recognition by this enzyme is not clearly known. In our present study we wished to identify the active center and further elucidate the substrate preference of PPM1D, and to this end performed sequence alignments among the human PPM1 type phosphatases. The results of this analysis clearly showed that the putative active site residues of PPM1D are highly conserved among the PPM1 family members. Phosphatase analyses using PPM1D mutants further identified the metal-chelating residues and a phosphate binding residue. In kinetic analyses using a series of phosphorylated p53 peptide analogs, the introduction of acidic residues into the region flanking the sites of dephosphorylation enhanced their affinity with PPM1D. Homology modeling of PPM1D also revealed that PPM1D contains two characteristic loops, a Pro-residue rich loop on the opposite side of the active site and a basic-residue rich loop in the vicinity of the active site in the catalytic domain. Interestingly, nonhydrolyzable AP4-3E peptides derived from the acidic p53 peptide analogs very effectively blocked PPM1D activity in an uncompetitive manner, suggesting that AP4-3E peptides may be useful lead compounds in the development of novel inhibitors of PPM1D.