AQP2 trafficking is regulated by phosphorylation and dephosphorylation of serine residues in the AQP2 c-terminus. Vasopressin (VP) binding to its receptor (V2R) leads to a cascade of events that result in the phosphorylation of serine 256 (S256), S264 and S269, but dephosphorylation of S261. To identify which phosphatase is responsible for VP-induced S261 dephosphorylation, we pretreated cells with different phosphatase inhibitors before VP stimulation. Only sanguinarine, a specific protein phosphatase 2C (PP2C) inhibitor, abolished VP-induced S261 dephosphorylation, but not inhibitors of PP1, PP2A (okadaic acid) or PP2B (cyclosporine). However, both sanguinarine and VP significantly increased phosphorylation of ERK, a kinase that can phosphorylate S261; inhibition of ERK by PD98059 partially decreased baseline S261 phosphorylation. These data support a role of ERK in S261 phosphorylation, but suggest that upon VP treatment, increased phosphatase activity overcomes the increase in ERK activity, resulting in overall dephosphorylation of S261. We also found that sanguinarine abolished VP-induced S261 dephosphorylation in cells expressing mutated AQP2 S256A, suggesting that the phosphorylation state of S261 is independent of S256. Sanguinarine alone did not induce AQP2 membrane trafficking, nor did it inhibit VP-induced AQP2 membrane accumulation in cells and kidney tissues, suggesting that S261 does not play an observable role in acute AQP2 membrane accumulation. In conclusion, PP2C activity is required for S261 AQP2 dephosphorylation upon VP stimulation, and this occurs independent of S256 phosphorylation. Understanding the pathways involved in modulating PP2C will help obtain a deeper understanding of the role of S261 in cellular events involving AQP2.