DNA methylation is an important epigenetic mark established by the combined actions of methylation and demethylation reactions. Plants use a base excision repair pathway for active DNA demethylation. After 5-methylcytosine removal, the Arabidopsis DNA glycosylase/lyase ROS1 incises the DNA backbone and part of the product has a single-nucleotide gap flanked by 3′- and 5′-phosphate termini. Here we show that the DNA phosphatase ZDP removes the blocking 3′-phosphate, allowing subsequent DNA polymerization and ligation steps needed to complete the repair reactions. ZDP and ROS1 interact in vitro and co-localize in vivo in nucleoplasmic foci. Extracts from zdp mutant plants are unable to complete DNA demethylation in vitro, and the mutations cause DNA hypermethylation and transcriptional silencing of a reporter gene. Genome-wide methylation analysis in zdp mutant plants identified hundreds of hypermethylated endogenous loci. Our results show that ZDP functions downstream of ROS1 in one branch of the active DNA demethylation pathway.