Phosphorylase phosphatase is isolated as an inactive Mr = 70,000 complex made up of a catalytic and a regulatory subunit (inhibitor 2). Separation of the two components yields the free catalytic subunit in a completely inactive state. It can be activated by Mn2+ or Co2+, not Mg2+ or Ca2+. No metal ion is incorporated during this process, as shown by the use of 54Mn2+. The inactive complex, but not the isolated catalytic subunit, can be activated by the protein kinase FA (Vandenheede, J.R., Yang, S.-D., Goris, J., and Merlevede, W. (1980) J. Biol. Chem. 255, 11768-11774), which causes the simultaneous phosphorylation of inhibitor 2 and conversion of the catalytic subunit to an active conformation. The activated enzyme undergoes autodephosphorylation to produce a complex that is inactive even though the catalytic subunit is still in the active form; in a slower step, it returns to its original inactive state. No such conversion occurs in the absence of inhibitor 2, indicating that the regulatory subunit is required for both the activation and inactivation reactions. Complexes were prepared by adding inhibitor 2 to various isolated catalytic subunits. Only the one reconstituted with the FA-activated species behaved like the native enzyme in that the catalytic subunit underwent transformation to the inactive form, then could be reactivated by FA. These data suggest that the two subunits must interact in a highly specific manner to allow the structural changes accompanying the activation-inactivation process. Models are proposed for the changes in conformation induced by Mn2+ or FA.