Somatic sex determination in Caenorhabditis elegans involves a signal transduction pathway linking a membrane receptor to a transcription factor. The fem-2 gene is central to this pathway, producing a protein phosphatase (FEM-2) of the type 2C (PP2C). FEM-2 contains a long amino terminus that is absent in canonical PP2C enzymes. The function of this domain is difficult to predict, since it shows no sequence similarity to any other known proteins or motifs. Here we report the cloning of the fem-2 homologue from Caenorhabditis briggsae (Cb-fem-2). The sequence identity is much higher than that observed for other C. briggsae homologues of C. elegans sex determination proteins. However, this level is not uniform across the entire lengths of the proteins; it is much lower in the amino termini. Thus, the two domains of the same protein are evolving at different rates, suggesting that they have different functional constraints. Consistent with this, Cb-FEM-2 is able to replace some, but not all, of the Ce-FEM-2 in vivo function. We show that removal of the amino terminus from Ce-FEM-2 has no effect on its in vitro phosphatase activity, or its ability to replace the in vivo function of a yeast PP2C enzyme, but that it is necessary for proper FEM-2 function in worms. This demonstrates that the amino terminus is not an extended catalytic domain or a direct negative regulator of phosphatase activity.