In this study, we report isolation of a phosphatase gene designated GhHL1 from cotton and its functional characterization. GhHL1 transcripts were detected in all cotton tissues examined. Southern blotting analysis indicated that it exists in multiple-copies. Biochemical analysis showed that GhHL1 was Mg(2+)-dependent and cation-sensitive. Purified recombinant GhHL1 protein dephosphorylated both 3',5'-bisphosphate nucleotide and inositol 1,4-bisphosphate, demonstrating dual 3', 5'-bisphosphate nucleotidase and inositol polyphosphate 1-phosphatase activities. Overexpression of GhHL1 complemented yeast hal2 mutant and enhanced yeast growth under elevated NaCl or LiCl, showing a role in salt tolerance associated with ionic stress response. Taken together, these results show that GhHL1 is a functional and good candidate gene, which might be used to improve salt tolerance in plants.