Calcineurin, a heterodimer of calcineurin B, a 19,000 Mr Ca2+-binding subunit, and calcineurin A, a 61,000 Mr calmodulin-binding subunit, was previously proposed to be a calmodulin- and Ca2+-regulated protein phosphatase. Like other calmodulin-stimulated enzymes, calcineurin can be activated and rendered calmodulin- and Ca2+-independent by limited proteolysis. By glycerol gradient centrifugation, the native enzyme has a s20,w of 4.5 S in EGTA and 5 S in the presence of Ca2+-calmodulin. Under the same conditions, the s20,w of the trypsin-activated enzyme (4.3 S) is not affected by Ca2+ and calmodulin. The trypsin-treated enzyme is a heterodimer of calcineurin B and a 45,000 Mr fragment of calcineurin A that has lost its ability to interact with calmodulin. Phosphatase activity sediments with calcineurin or its proteolytic fragments, providing further evidence that calcineurin is indeed a protein phosphatase. Calmodulin protects calcineurin against tryptic digestion; proteolysis occurs more slowly, yielding fragments with Mr 57,000, 55,000, and 54,000 that have preserved their ability to interact with calmodulin. After trypsin treatment in the presence of calmodulin, the protein phosphatase activity of calcineurin is still regulated by calmodulin. Prolonged trypsin treatment in the presence of calmodulin produces a 46,000 Mr fragment. Unlike the fragments generated in the absence of calmodulin, this 46,000 Mr fragment still interacts weakly with calmodulin. Thus, calcineurin, like other calmodulin-regulated enzymes, consists of a catalytic domain resistant to proteolysis and a calmodulin-binding regulatory domain susceptible to protease action in the absence of calmodulin but not in its presence. In the absence of calmodulin, the regulatory domain exerts an inhibitory effect on the catalytic domain; the inhibition is relieved upon calmodulin binding to or tryptic degradation of the regulatory domain.