Striatal-enriched protein tyrosine phosphatase (STEP) is a brain-specific phosphatase that modulates key signaling molecules involved in synaptic plasticity and neuronal function. Targets include extracellular-regulated kinase 1 and 2 (ERK1/2), stress-activated protein kinase p38 (p38), the Src family tyrosine kinase Fyn, N-methyl-D-aspartate receptors (NMDARs), and α-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid receptors (AMPARs). STEP-mediated dephosphorylation of ERK1/2, p38, and Fyn leads to inactivation of these enzymes, whereas STEP-mediated dephosphorylation of surface NMDARs and AMPARs promotes their endocytosis. Accordingly, the current model of STEP function posits that it opposes long-term potentiation and promotes long-term depression. Phosphorylation, cleavage, dimerization, ubiquitination, and local translation all converge to maintain an appropriate balance of STEP in the central nervous system. Accumulating evidence over the past decade indicates that STEP dysregulation contributes to the pathophysiology of several neuropsychiatric disorders, including Alzheimer's disease, schizophrenia, fragile X syndrome, epileptogenesis, alcohol-induced memory loss, Huntington's disease, drug abuse, stroke/ischemia, and inflammatory pain. This comprehensive review discusses STEP expression and regulation and highlights how disrupted STEP function contributes to the pathophysiology of diverse neuropsychiatric disorders.