Human A431 and rat glioma C6 cells exposed to isoproterenol underwent a time- and dose-dependent loss of isoproterenol-stimulated adenylate cyclase activity. Desensitization was accompanied by sequestration of beta-adrenergic receptors, which became less accessible to the hydrophilic antagonist 3H-labeled 4-(3-tert-butylamino-2-hydroxypropoxy)benzimidazole-2-one hydrochloride ([3H]CGP-12177) and redistributed from the heavier density plasma membrane fraction to a lighter density membrane fraction. Prior treatment of the cells with concanavalin A or phenylarsine oxide blocked sequestration of the receptors but not desensitization of the agonist-stimulated adenylate cyclase. The membranes from such pretreated cells were exposed to alkali to inactivate adenylate cyclase, and the receptors were transferred to a foreign adenylate cyclase by membrane fusion with polyethylene glycol. beta receptors from desensitized cells exhibited a reduced ability to maximally stimulate the foreign adenylate cyclase, but remained accessible to [3H]CGP-12177 in the fused membranes. When isoproterenol-treated cells were washed free of agonist, there was a time-dependent recovery of agonist responsiveness and [3H]CGP-12177-binding sites. Using the fusion technique, the receptors recovered their functional activity in the resensitized cells. In concanavalin A-treated cells, desensitization and resensitization appeared to occur in the absence of receptor sequestration. Finally, membranes from desensitized cells pretreated with concanavalin A were fused with polyethylene glycol and assayed for agonist-stimulated adenylate cyclase. There was no reversal of the desensitized state. Thus, the primary, essential step in the desensitization process is a reduction in functional activity of the beta-adrenergic receptor. In contrast, sequestration of the receptors is not a prerequisite, but a secondary event during desensitization.