While PHLPP1 and its family member PHLPP2 have similar functions, their specificity for Akt isoforms differs. PHLPP1 preferentially binds and dephosphorylates Akt2 and Akt3, resulting in decreased phosphorylation of a set of Akt targets that includes GSK-3beta, TSC2, and FoxO, as well as and GSK3a. PHLPP2, on the other hand, binds and dephosphorylates Akt1 and Akt3, resulting in downregulation of an overlapping yet distinct set of downstream targets: GSK-3beta, TSC2, and FoxO, as well as TSC2 and p27.

Interestingly, PHLPP1's regulation of its protein substrates appears to be regulated by its protein-protein interaction domains. PHLPP1 lacking a C-terminal PDZ ligand is unable to dephosphorylate Akt, whereas deletion of PHLPP1's PH domain decreases its ability to dephosphorylate PKC.

Since PHLPP1 downregulates the pro-survival kinase Akt, it is not surprising that this phosphatase plays roles in apoptosis and suppression of cellular proliferation. siRNA-mediated reduction of PHLPP1 causes increased apoptosis in a number of cell lines, whereas overexpression of PHLPP1 decreases proliferation in LN229, a glioblastoma cell line, and suppresses its ability to form tumors in nude mice.

PHLPP1 also regulates the phosphorylation and activity of ERK; it has been suggested to interact directly with the nucleotide-free form of K-Ras and thus suppress the Ras/Raf/MEK/ERK pathway. This pathway is important for the regulation of learning and memory, and overexpression of rat PHLPP1beta in the hippocampus of transgenic mice abolishes memory for novel objects. In addition, training for hippocampus-based learning prompts calpain protease-mediated degradation of PHLPP1. Together, these results suggest that proper regulation of PHLPP1 in certain neurons is crucial for memory formation.