Biodiversity in plant shape is mainly attributable to the diversity of leaf shape, which is largely determined by the transient morphogenetic activity of the leaf margin that creates leaf serrations. However, the precise mechanism underlying the establishment of this morphogenetic capacity remains poorly understood. We report here that INDOLE-3-BUTYRIC ACID RESPONSE 5 (IBR5), a dual-specificity phosphatase, is a key component of leaf-serration regulatory machinery. Loss-of-function mutants of IBR5 exhibited pronounced serrations due to increased cell area. IBR5 was localized in the nucleus of leaf epidermis and petiole cells. Introducing a C129S mutation within the highly conserved VxVHCx2GxSRSx5AYLM motif of IBR5 rendered it unable to rescue the leaf-serration defects of the ibr5-3 mutant. In addition, auxin reporters revealed that the distribution of auxin maxima was expanded ectopically in ibr5-3. Furthermore, we found that the distribution of PIN1 on the plasma membrane of the epidermal and cells around the leaf vein was compromised in ibr5-3. We concluded that IBR5 is essential for the establishment of PIN-FORMED 1 (PIN1)-directed auxin maxima at the tips of leaf serration, which is vital for the elaborated regulation during its formation.