The glycogen-associated form of protein phosphatase-1 (PP-1G) is a heterodimer comprising a 37-kDa catalytic (C) subunit and a 161-kDa glycogen-binding (G) subunit, the latter being phosphorylated by cAMP-dependent protein kinase at two serine residues (site 1 and site 2). Here the amino acid sequence surrounding site 2 has been determined and this phosphoserine shown to lie 19 residues C-terminal to site 1 in the primary structure. The sequence in this region is: (sequence; see text) At physiological ionic strength, phosphorylation of glycogen-bound PP-1G was found to release all the phosphatase activity from glycogen. The released activity was free C subunit, and not PP-1G, while the phospho-G subunit remained bound to glycogen. Dissociation reflected a greater than or equal to 4000-fold decrease in affinity of C subunit for G subunit and was readily reversed by dephosphorylation. Phosphorylation and dephosphorylation of site 2 was rate-limiting for dissociation and reassociation of C subunit. Release of C subunit was also induced by the binding of anti-site-1 Fab fragments to glycogen-bound PP-1G. At near physiological ionic strength, PP-1G and glycogen concentration, site 2 was autodephosphorylated by PP-1G with a t0.5 of 2.6 min at 30 degrees C, approximately 100-fold slower than the t0.5 for dephosphorylation of glycogen phosphorylase under the same conditions. Site 2 was a good substrate for all three type-2 phosphatases (2A, 2B and 2C) with t0.5 values less than those toward the alpha subunit of phosphorylase kinase. At the levels present in skeletal muscle, the type-2A and type-2B phosphatases are potentially capable of dephosphorylating site 2 in vivo within seconds. Site 1 was at least 10-fold less effective than site 2 as a substrate for all four phosphatases. In conjunction with information presented in the following paper in this issue of this journal, the results substantiate the hypothesis that PP-1 activity towards the glycogen-metabolising enzymes is regulated in vivo by reversible phosphorylation of a targetting subunit (G) that directs the C subunit to glycogen--protein particles. The efficient dephosphorylation of site 2 by the Ca2+/calmodulin-stimulated protein phosphatase (2B) provides a potential mechanism for regulating PP-1 activity in response to Ca2+, and represents an example of a protein phosphatase cascade.