CTDSP1 is a class 2C phosphatase with activity dependent on the conserved DxD motif. Expression of CTDSP1 inhibited activated transcription from several promoter-reporter gene constructs, but expression of a mutant lacking phosphatase activity enhanced transcription. Neuronal gene transcription is repressed in nonneuronal cells by the repressor element-1 (RE1)-silencing transcription factor/neuron-restrictive silencer factor (REST/NRSF; 600571) complex. REST/NRSF recruits SCPs to neuronal genes that contain RE1 elements, leading to neuronal gene silencing in nonneuronal cells. Phosphatase-inactive forms of SCP interfere with REST/NRSF function and promote neuronal differentiation of P19 stem cells. Likewise, small interfering RNA directed to the single Drosophila SCP unmasks neuronal gene expression in S2 cells. Thus, SCP activity is an evolutionarily conserved transcriptional regulator that acts globally to silence neuronal genes.