We have isolated a mouse cDNA for a novel dual-specificity phosphatase designated LDP-3 (low-molecular-mass dual-specificity phosphatase 3). The 450 bp open reading frame encodes a protein of 150 amino acids with a predicted molecular mass of 16 kDa. Northern blot and reverse transcription-PCR analyses show that LDP-3 transcripts are expressed in almost all mouse tissues examined. In vitro analyses using several substrates and inhibitors indicate that LDP-3 possesses intrinsic dual-specificity phosphatase activity. When expressed in mammalian cells, LDP-3 protein is localized mainly to the apical submembrane area. Forced expression of LDP-3 does not alter activation of ERK (extracellular-signal-regulated kinase), but rather enhances activation of JNK (c-Jun N-terminal kinase) and p38 and their respective upstream kinases MKK4 (mitogen-activated protein kinase kinase 4) and MKK6 in cells treated with 0.4 M sorbitol. By screening with a variety of stimuli, we found that LDP-3 specifically enhances the osmotic stress-induced activation of JNK and p38.