We examined the role of phosphatases in synaptic transmission using the permeant phosphatase inhibitor okadaic acid (OA). In the crayfish neuromuscular junction (NMJ), postsynaptic effects including increases in input resistance occurred at doses greater than 5 microM OA. At lower doses (0.5-5 microM) the effects were solely presynaptic and transmitter release increased over three-fold despite small reductions in amplitude and duration of presynaptic action potentials. Potentiating effects of serotonin on transmitter release, which depend on phosphorylation, were increased by OA. Frequency facilitation was reduced but its decay was not affected. In frog NMJs, OA increased spontaneous and evoked release two-fold through presynaptic mechanisms. An inactive analog of OA, OA tetra-acetate, had no effect on transmitter release at frog and crayfish NMJ. Therefore, phosphatases have a strong modulating influence on synaptic transmission.