Respiratory syncytial virus (RSV) RNA synthesis occurs in cytoplasmic inclusion bodies (IBs) in which all the components of the viral RNA polymerase are concentrated. In this work, we show that RSV P protein recruits the essential RSV transcription factor M2-1 to IBs independently of the phosphorylation state of M2-1. We also show that M2-1 dephosphorylation is achieved by a complex formed between P and the cellular phosphatase PP1. We identified the PP1 binding site of P, which is an RVxF-like motif located nearby and upstream of the M2-1 binding region. NMR confirmed both P-M2-1 and P-PP1 interaction regions in P. When the P–PP1 interaction was disrupted, M2-1 remained phosphorylated and viral transcription was impaired, showing that M2-1 dephosphorylation is required, in a cyclic manner, for efficient viral transcription. IBs contain substructures called inclusion bodies associated granules (IBAGs), where M2-1 and neo-synthesized viral mRNAs concentrate. Disruption of the P–PP1 interaction was correlated with M2-1 exclusion from IBAGs, indicating that only dephosphorylated M2-1 is competent for viral mRNA binding and hence for a previously proposed post-transcriptional function.