hYVH1 [human orthologue of YVH1 (yeast VH1-related phosphatase)] is an atypical dual-specificity phosphatase that is widely conserved throughout evolution. Deletion studies in yeast have suggested a role for this phosphatase in regulating cell growth. However, the role of the human orthologue is unknown. The present study used MS to identify Hsp70 (heat-shock protein 70) as a novel hYVH1-binding partner. The interaction was confirmed using endogenous co-immunoprecipitation experiments and direct binding of purified proteins. Endogenous Hsp70 and hYVH1 proteins were also found to co-localize specifically to the perinuclear region in response to heat stress. Domain deletion studies revealed that the ATPase effector domain of Hsp70 and the zinc-binding domain of hYVH1 are required for the interaction, indicating that this association is not simply a chaperone-substrate complex. Thermal phosphatase assays revealed hYVH1 activity to be unaffected by heat and only marginally affected by non-reducing conditions, in contrast with the archetypical dual-specificity phosphatase VHR (VH1-related protein). In addition, Hsp70 is capable of increasing the phosphatase activity of hYVH1 towards an exogenous substrate under non-reducing conditions. Furthermore, the expression of hYVH1 repressed cell death induced by heat shock, H2O2 and Fas receptor activation but not cisplatin. Co-expression of hYVH1 with Hsp70 further enhanced cell survival. Meanwhile, expression of a catalytically inactive hYVH1 or a hYVH1 variant that is unable to interact with Hsp70 failed to protect cells from the various stress conditions. The results suggest that hYVH1 is a novel cell survival phosphatase that co-operates with Hsp70 to positively affect cell viability in response to cellular insults.