Ion channels directly activated by cGMP mediate the light response in retinal rods. Several components of the enzyme cascade controlling cGMP concentration are regulated, but there are no accepted mechanisms for modulation of the response of the channel to cGMP. Here we report evidence that in excised patches an endogenous protein phosphatase converts the channel from a state with low cGMP sensitivity to a state with almost 3 orders of magnitude higher sensitivity in the predicted physiological range of cGMP concentration. The action of this endogenous phosphatase was blocked by specific serine/threonine phosphatase inhibitors (microcystin-LR, okadaic acid, and calyculin A). An increase in apparent agonist affinity also was produced by addition of purified protein phosphatase 1. In contrast, protein phosphatase 2A decreased apparent agonist affinity, suggesting that two phosphorylation sites may regulate the agonist sensitivity of the channel in a reciprocal manner. This regulation may be involved in fine-tuning the light response or in light or dark adaptation.