Cyclic nucleotide-gated (CNG) channels are critical components in the visual and olfactory signal transduction pathways, and they primarily gate in response to changes in the cytoplasmic concentration of cyclic nucleotides. We previously found that the ability of the native rod CNG channel to be opened by cGMP was markedly inhibited by analogues of diacylglycerol (DAG) without a phosphorylation reaction (Gordon, S.E., J. Downing-Park, B. Tam, and A.L. Zimmerman. 1995. Biophys. J. 69:409-417). Here, we have studied cloned bovine rod and rat olfactory CNG channels expressed in Xenopus oocytes, and have determined that they are differentially inhibited by DAG. At saturating [cGMP], DAG inhibition of homomultimeric (alpha subunit only) rod channels was similar to that of the native rod CNG channel, but DAG was much less effective at inhibiting the homomultimeric olfactory channel, producing only partial inhibition even at high [DAG]. However, at low open probability (P(o)), both channels were more sensitive to DAG, suggesting that DAG is a closed state inhibitor. The Hill coefficients for DAG inhibition were often greater than one, suggesting that more than one DAG molecule is required for effective inhibition of a channel. In single-channel recordings, DAG decreased the P(o) but not the single-channel conductance. Results with chimeras of rod and olfactory channels suggest that the differences in DAG inhibition correlate more with differences in the transmembrane segments and their attached loops than with differences in the amino and carboxyl termini. Our results are consistent with a model in which multiple DAG molecules stabilize the closed state(s) of a CNG channel by binding directly to the channel and/or by altering bilayer-channel interactions. We speculate that if DAG interacts directly with the channel, it may insert into a putative hydrophobic crevice among the transmembrane domains of each subunit or at the hydrophobic interface between the channel and the bilayer.