We have cloned a cDNA encoding a novel protein pharbin with a homology to inositol polyphosphate 5-phosphatases. Pharbin contains relatively well-conserved catalytic motifs for 5-phosphatase, a proline-rich sequence corresponding to the SH3-binding motif, and a sequence consistent with the CaaX motif at the C-terminus. COS-7 cells transfected with pharbin exhibited elevated hydrolytic activity on the 5-phosphate group of inositol 1,4,5-trisphosphate, inositol 1,3,4,5-tetrakisphosphate, and phosphatidylinositol 4, 5-bisphosphate. Thus, pharbin indeed serves as an inositol polyphosphate 5-phosphatase. When pharbin was transfected to C3H/10T1/2 fibroblasts, it was located to the plasma membrane-associated structures including membrane ruffles. The cells were converted to dendritic forms within 24 h. The protein with deleted or point-mutated CaaX motif hardly induced the dendritic forms but remained associated with the membranes. These results imply that the CaaX motif is required for the morphological alteration but that some other structural element is likely to also be responsible for the membrane localization.