Active repression of protein synthesis protects cells against protein malfolding during endoplasmic reticulum stress, nutrient deprivation and oxidative stress. However, long-term adaptation to these conditions requires synthesis of new stress-induced proteins. Phosphorylation of the alpha-subunit of translation initiation factor 2 (eIF2alpha) represses translation in diverse stressful conditions. GADD34 is a stress-inducible regulatory subunit of a holophosphatase complex that dephosphorylates eIF2alpha, and has been hypothesized to play a role in translational recovery. Here, we report that GADD34 expression correlated temporally with eIF2alpha dephosphorylation late in the stress response. Inactivation of both alleles of GADD34 prevented eIF2alpha dephosphorylation and blocked the recovery of protein synthesis, normally observed late in the stress response. Furthermore, defective recovery of protein synthesis markedly impaired translation of stress-induced proteins and interfered with programmed activation of stress-induced genes in the GADD34 mutant cells. These observations indicate that GADD34 controls a programmed shift from translational repression to stress-induced gene expression, and reconciles the apparent contradiction between the translational and transcriptional arms of cellular stress responses.