During the developmental process of sporulation in Saccharomyces cerevisiae, membrane structures called prospore membranes are formed de novo, expand, extend, acquire a round shape, and finally become plasma membranes of the spores. GIP1 encodes a regulatory/targeting subunit of protein phosphatase type 1 that is required for sporulation. Gip1 recruits the catalytic subunit Glc7 to septin structures that form along the prospore membrane; however, the molecular basis of its localization and function is not fully understood. Here we show that Gip1 changes its localization dynamically and is required for prospore membrane extension. Gip1 first associates with the spindle pole body as the prospore membrane forms, moves onto the prospore membrane and then to the septins as the membrane extends, distributes around the prospore membrane after closure, and finally translocates into the nucleus in the maturing spore. Deletion and mutation analyses reveal distinct sequences in Gip1 that are required for different localizations and for association with Glc7. Binding to Glc7 is also required for proper localization. Strikingly, localization to the prospore membrane, but not association with septins, is important for Gip1 function. Further, our genetic analysis suggests that a Gip1-Glc7 phosphatase complex regulates prospore membrane extension in parallel to the previously reported Vps13, Spo71, Spo73 pathway.