We have characterized the opsin phosphatase activities in extracts of rod outer segments and determined their relationship to known protein phosphatases. The opsin phosphatase activity in the extracts was not due to protein phosphatases 1, 2B, or 2C because it was neither stimulated by Mg2+ or Ca2+/calmodulin nor inhibited by protein phosphatase inhibitors-1 or -2. Opsin phosphatase activity in rod outer segment extracts was potently inhibited by okadaic acid (IC50 approximately 10 nM), a preferential inhibitor of protein phosphatase 2A. Moreover, during chromatography on DEAE-Sepharose, the opsin phosphatase activity co-eluted with three peaks of protein phosphatase 2A activity, termed protein phosphatases 2A0, 2A1, and 2A2. The opsin phosphatase activity of each peak was stimulated by polylysine, a known activator of protein phosphatase 2A. Finally, treatment of rod outer segment extracts with 80% ethanol at room temperature converted the activity from a high molecular weight form characteristic of the protein phosphatase 2A0, 2A1, and 2A2 species to a low molecular weight form characteristic of the protein phosphatase 2A catalytic subunit. We conclude that protein phosphatase 2A is likely to be the physiologically relevant rhodopsin phosphatase. The 48-kDa rod outer segment protein arrestin (S-antigen) was found to inhibit the dephosphorylation of freshly photolyzed rhodopsin by protein phosphatase 2A but did not inhibit the dephosphorylation of unbleached rhodopsin. Arrestin has no effect on the dephosphorylation of phorphorylase a, indicating that the effect was substrate-directed. It appears that dephosphorylation of the photoreceptor protein phosphorhodopsin occurs only after decay of the photoactivated protein and that this may be regulated in vivo by arrestin. The binding of arrestin to photolyzed phosphorylated rhodopsin, i.e. the binding of a regulatory protein to a protein phosphatase substrate to form a complex resistant to dephosphorylation represents a novel mechanism for the regulation of protein phosphatase 2A.