The inhibition of the cytoplasmic 5'-nucleotidase (EC 3.1.3.5) by its product, inosine, was studied with a partially purified preparation of the enzyme from rat liver. Inhibition of Pi production was found to be due to exchange of the inosine moiety between inosine and IMP. Exchange was not catalysed by reversal of the hydrolytic reaction, suggesting, instead, the mediation of an enzyme-phosphate intermediate. Two models for the catalytic mechanism are proposed and rate equations for the dependence of Pi production on inosine concentration are derived. The experimentally determined dependence was consistent with a mechanism in which hydrolysis of the enzyme-phosphate intermediate occurred only when it was unoccupied by inosine. This conclusion suggests that inosine analogues that cannot participate in exchange should inhibit the enzyme. Such inhibitors might be useful in defining the enzyme's physiological role or as pharmacological agents to decrease breakdown of purine nucleotides. The possibility that nucleoside exchange provides an alternative route for the phosphorylation of mutagenic or cytotoxic nucleoside analogues should also be considered.