Glutathione-S-transferase (GST)-pp60(c-Src) (GST-Src) expressed in Escherichia coli is as catalytically active as purified, activated pp60(c-Src) protein derived from human platelets. We utilized the bacterially expressed enzyme, together with information about the structures of Src family kinases in complex with their inhibitors PP1 and PP2, to modify PP1 in a quest for improved inhibitors. Despite the detailed structural information on Hck-PP1 and Lck-PP2 complexes, which shows that PP1 and PP2 bind to the adenosine triphosphate (ATP) pocket, we were unable to improve the affinity between modified PP1 and Src. Puzzled, we examined in detail the mechanism by which PP1 inhibits the kinase activity of Src. Here we report that PP1 is non-competitive with ATP for the inhibition of Src, at variance with what is currently accepted, and is a 'mixed competitive inhibitor' vis-à-vis the substrate. These findings shed new light on the mechanism whereby PP1-like molecules inhibit Src. Examination of the homology between the kinase domain of Src and those of Hck and Lck reveals significant differences outside the ATP binding pocket, whereas they are identical within the ATP binding domain. These results suggest that PP1 may be a leading compound for ATP non-competitive inhibitors of Src family kinases. Since Src in its active form is the hallmark of numerous cancers, understanding how PP1 inhibits activated Src will aid in the discovery of potent and selective Src kinase inhibitors.