Phosphorylase phosphatase isolated from rabbit skeletal muscle can be activated in several ways. Trypsin-Mn2+ treatment of the purified Mr = 70,000 complex or addition of Mn2+ alone to the isolated inactive catalytic subunit gives enzyme species that readily dephosphorylate phosphorylase a and the type 2 regulatory subunit of cAMP-dependent protein kinase as well as synthetic phosphopeptides corresponding to the phosphorylation sites of these proteins. In contrast, enzyme activated by phosphorylation of the regulatory subunit using factor FA (glycogen synthase kinase 3) and Mg2+-ATP and thought to be of physiological significance dephosphorylates the protein substrates but not the phosphopeptides. Likewise, the active catalytic subunit isolated following FA treatment could not act on the peptides unless Mn2+ ions (maximal effect at 250 microM) were added. Mg2+ and Ca2+ could not substitute for Mn2+. Such differences in substrate specificity are not seen with p-nitrophenyl phosphate which is dephosphorylated by all forms of the phosphatase. The results suggest that the primary sequence surrounding the phosphorylation site of the substrate is not all that is necessary for recognition by the FA-activated form of the enzyme. They are interpreted in terms of constraints within the enzyme that are relaxed following exposure to Mn2+ or by the additional determinants present in larger protein substrates.