Nucleophosmin (NPM) is an important phosphoprotein with pleiotropic functions in various cellular processes. Although phosphorylation has been postulated as an important functional determinant, possible regulatory roles of this modification on NPM are not fully characterized. Here, we find that NPM is dephosphorylated on various threonine residues (Thr199 and Thr234/237) in response to UV-induced DNA damage. Further experiments indicate that the serine/threonine protein phosphatase PP1β is a physiological NPM phosphatase under both the genotoxic stress and growth conditions. As a consequence, NPM in its hypophosphorylated state facilitates DNA repair. Finally, our results suggest that one possible mechanism of this protective response lies in enhanced NPM-retinoblastoma tumor suppressor protein (pRB) interaction, leading to the relief of the repressive pRB-E2F1 circuitry and the consequent transcriptional activation of E2F1 and several downstream DNA repair genes. Thus, this study unveils a key phosphatase of NPM and highlights a novel mechanism by which the PP1β-NPM pathway contributes to cellular DNA damage response.