Tor proteins, targets of the antiinflammatory drug rapamycin, mediate a conserved signaling pathway required for cell growth and proliferation in eukaryotes. By global transcriptional analysis of Saccharomyces cerevisiae, we have examined the role of the essential protein Tap42 in transcriptional regulation by Tor. We find that Tap42 inactivation, like rapamycin addition, prolongs activation of stress response genes. In contrast, Tap42 inactivation, as does inactivation of the protein phosphatases Sit4 and Pph21/22, blocks rapamycin induction of nitrogen discrimination pathway genes. Tap42 inactivation neither affects ribosomal protein gene expression nor blocks rapamycin-induced repression of these genes. These results indicate that Tap42 can both inhibit and activate protein phosphatases and provide insight into the complex events underlying TOR regulation of transcription.