Protein phosphatase 5 (PP5) is highly expressed in the mammalian brain, but few physiological substrates have yet been identified. Here, we investigated the kinetics of dephosphoryation of phospho-tau by PP5 and found that PP5 had a Km of 8-13 µM toward tau, which is similar to that of PP2A, the major known tau phosphatase. This Km value is within the range of intraneuronal tau concentration in human brain, suggesting that tau could be a physiological substrate of both PP5 and PP2A. PP5 dephosphorylated tau at all 12 Alzheimer disease (AD)-associated abnormal phosphorylation sites studied with different efficiency toward each site. Thr205, Thr212, and Ser409 of tau were the most favorable sites, Ser199, Ser202, Ser214, Ser396, and Ser404 were less favorable sites, and Ser262 was the poorest site for PP5. Over-expression of PP5 in PC12 cells resulted in dephosphorylation of tau at multiple phosphorylation sites. The activity but not the protein level of PP5 was found to be decreased by ~20% in AD neocortex. These results suggest that tau is probably a physiological substrate of PP5 and that the abnormal hyperphosphorylation of tau in AD might in part result from the decreased PP5 activity in the diseased brains.