The cGMP phosphodiesterase of vertebrate retinal rod outer segments plays a key role in visual transduction. A functionally active form of the inhibitory gamma subunit of the phosphodiesterase, which keeps the enzyme inactive in the dark, has been obtained in high yield from a synthetic gene expressed in Escherichia coli. A DNA sequence encoding the 87-residue bovine gamma subunit was chemically synthesized and assembled from 10 oligonucleotides. The synthetic gene was cloned into an expression vector that uses the promoter PL of lambda phage. E. coli was transformed with this vector, which encodes a fusion protein consisting of the first 31 residues of the lambda cII protein, a 7-residue joining sequence that is specifically cleaved at its C-terminal end by clotting protease factor Xa, and the 87-residue gamma subunit. The fusion protein was solubilized in 6 M urea and purified by ion-exchange chromatography on a CM-Sephadex column. The typical yield was 1 mg of fusion protein per liter of bacterial culture, which corresponds to the amount of gamma in about 2500 bovine retinas. Proteolytic cleavage of the fusion protein by factor Xa released a synthetic gamma with the same amino acid sequence as that of native gamma. Both fusion protein and synthetic gamma inhibited trypsin-activated phosphodiesterase with high affinity (Kd less than 100 pM). Likewise, both were as effective as native gamma in inhibiting transducin-activated phosphodiesterase in rod outer segment membranes. This inhibition was reversed by the activation of additional transducin. Thus, the N terminus of gamma is not intimately involved in interactions with either the catalytic subunits of the phosphodiesterase or the activated form of transducin. In contrast, a C-terminal deletion mutant terminating at residue 74 of gamma stimulated rather than inhibited the trypsin-activated enzyme. Thus, the C-terminal region of gamma is critical for inhibition of the phosphodiesterase.