The serum-derived phospholipid growth factor, lysophosphatidate (LPA), activates cells through the EDG family of G protein-coupled receptors. The present study investigated mechanisms by which dephosphorylation of exogenous LPA by lipid phosphate phosphatase-1 (LPP-1) controls cell signaling. Overexpressing LPP-1 decreased the net specific cell association of LPA with Rat2 fibroblasts by approximately 50% at 37 degrees C when less than 10% of LPA was dephosphorylated. This attenuated cell activation as indicated by diminished responses, including cAMP, Ca(2+), activation of phospholipase D and ERK, DNA synthesis, and cell division. Conversely, decreasing LPP-1 expression increased net LPA association, ERK stimulation, and DNA synthesis. Whereas changing LPP-1 expression did not alter the apparent K(d) and B(max) for LPA binding at 4 degrees C, increasing Ca(2+) from 0 to 50 micrometer increased the K(d) from 40 to 900 nm. Decreasing extracellular Ca(2+) from 1.8 mm to 10 micrometer increased LPA binding by 20-fold, shifting the threshold for ERK activation to the nanomolar range. Hence the Ca(2+) dependence of the apparent K(d) values explains the long-standing discrepancy of why micromolar LPA is often needed to activate cells at physiological Ca(2+) levels. In addition, the work demonstrates that LPP-1 can regulate specific LPA association with cells without significantly depleting bulk LPA concentrations in the extracellular medium. This identifies a novel mechanism for controlling EDG-2 receptor activation.