The cryptochrome blue light photoreceptors mediate various photomorphogenic responses in plants, including hypocotyl elongation, cotyledon expansion, and control of flowering time. The molecular mechanism of cryptochrome function in Arabidopsis is becoming increasingly clear, with recent studies showing that both CRY1 and CRY2 are localized in the nucleus and that CRY2 is regulated by blue light-dependent phosphorylation. Despite these advances, no positive cryptochrome signaling component has been identified to date. Here, we demonstrate that a novel Ser/Thr protein phosphatase (AtPP7) with high sequence similarity to the Drosophila retinal degeneration C protein phosphatase acts as an intermediate in blue light signaling. Transgenic Arabidopsis seedlings with reduced AtPP7 expression levels exhibit loss of hypocotyl growth inhibition and display limited cotyledon expansion in response to blue light irradiation. These effects are as striking as those seen in hy4 mutant seedlings, which are deficient in CRY1. We further demonstrate that AtPP7 transcript levels are not rate limiting and that AtPP7 probably acts downstream of cryptochrome in the nucleus, ensuring signal flux through the pathway. Based on our findings and recent data regarding cryptochrome action, we propose that AtPP7 acts as a positive regulator of cryptochrome signaling in Arabidopsis.