The P68 protein kinase is a serine/threonine kinase induced by interferon treatment and activated by double-stranded RNAs (dsRNAs). Once activated, the kinase phosphorylates its natural substrate, the alpha subunit of eukaryotic initiation factor 2 (eIF-2) leading to potential limitations in functional eIF-2 and decreases in protein synthesis initiation. We have recently purified from influenza virus-infected cells a P68 kinase inhibitor, found to be a 58-kDa cellular protein. We have now investigated the mechanisms by which the 58-kDa inhibitor regulates P68 kinase activity and how the inhibitor itself is controlled. The 58-kDa inhibitor did not function by degrading or sequestering the dsRNA activator of P68 but could repress phosphorylation of eIF-2 alpha by an already activated protein kinase. Utilizing antibody prepared against a 58-kDa-specific peptide, we showed that the 58-kDa proteins from infected and uninfected cells were present in equivalent amounts. Although kinase inhibitory activity could not be detected in crude uninfected cell extracts, ammonium sulfate treatment unmasked this activity and allowed purification of the cellular inhibitor with identical chromatographic properties as that from influenza virus-infected cells. Finally, we have identified and partially purified a specific inhibitor of the 58-kDa protein which we refer to as an "anti-inhibitor." Based on these data, we present a model depicting the complex regulation of the interferon-induced protein kinase in eukaryotic cells.