The proto-oncogene and inhibitor of protein phosphatase 2A (PP2A), SET, interacts with the third intracellular loop of the M3 muscarinic receptor (M3-MR), and SET knockdown with small interfering RNA (siRNA) in Chinese hamster ovary (CHO) cells augments M3-MR signaling. However, the mechanism of this action of SET on receptor signaling has not been defined, and we initiated studies to address this question. Knockdown of SET by siRNA in CHO cells stably expressing the M3-MR did not alter agonist-induced receptor phosphorylation or receptor internalization. Instead, it increased the extent of receptor dephosphorylation after agonist removal by ∼60%. In competition binding assays, SET knockdown increased high-affinity binding of agonist in intact cells and membrane preparations. Glutathione transferase pull-down assays and site-directed mutagenesis revealed a SET binding site adjacent to and perhaps overlapping the G protein-binding site within the third intracellular loop of the receptor. Mutation of this region in the M3-MR altered receptor coupling to G protein. These data indicate that SET decreases M3-MR dephosphorylation and regulates receptor engagement with G protein, both of which may contribute to the inhibitory action of SET on M3-MR signaling.