Reversible phosphorylation is the cell's most prevalent form of posttranslational modification, yet its role in the regulation of mitochondrial functions is poorly understood. We have discovered that a member of the dual-specific protein tyrosine phosphatase (DS-PTP) family, PTPMT1 (PTP localized to the Mitochondrion 1) resides nearly exclusively in mitochondria. PTPMT1 is targeted to the mitochondrion by an N-terminal signal sequence and is found anchored to the matrix face of the inner membrane. Knockdown of PTPMT1 expression in the pancreatic insulinoma cell line INS-1 832/13 alters the mitochondrial phosphoprotein profile and markedly enhances both ATP production and insulin secretion. These data define PTPMT1 as a potential drug target for the treatment of type II diabetes and strengthen the notion that mitochondria are an underappreciated site of signaling by reversible phosphorylation.