The specificity of major protein phosphatases is conferred via targeting subunits, each of which binds specifically to the phosphatase and targets it to the vicinity of substrate proteins. In the case of protein phosphatase 1 (PP1), an RVXFXD motif on a targeting subunit binds to a cleft in PP1c, the catalytic subunit. Here we report that a substrate of PP1, the Na-K-Cl cotransporter (NKCC1), bears this motif in its N terminus near sites of regulatory phosphorylation and that direct binding of PP1 to NKCC1 is functionally important in determining the set point for intracellular chloride regulation. NKCC1 mutants in which the motif is destroyed or improved exhibit dramatically shifted activation curves because of a change in the rate of cotransporter dephosphorylation. Furthermore, direct interaction of NKCC1 and PP1c observed by coprecipitation of the two proteins is not seen in a mutant lacking the site. This establishes a new paradigm of phosphatase specificity, one in which a substrate protein containing an RVXFXD motif binds directly to PP1c; we propose that this may be a quite general mechanism.