There is considerable evidence which suggests that the gamma-subunit of cGMP phosphodiesterase (PDE gamma) is a multifunctional protein which may interact directly with both the catalytic subunits of PDE (PDE alpha beta) and the alpha-subunit of transducin (T alpha) (Whalen, M., and Bitensky, M. (1989) Biochem. J. 259, 13-19; Griswold-Prenner, I., Young, J. H., Yamane, H. K., and Fung, B. K.-K. (1988) Invest. Ophthalmol. & Visual Sci. 29, (Suppl.) 218). To determine the region of interaction between the multifunctional PDE gamma and T alpha, and to determine the significance of this interaction, peptides corresponding to various regions of PDE gamma were synthesized and tested for their ability to inhibit the GTPase activity of T alpha. One of these peptides, PDE gamma-3 (bovine amino acid residues 31-45), inhibited the GTPase activity of T alpha with an I50 of 450 microM. The peptide (PDE gamma-3) was found to inhibit the GTPase activity of T alpha by inducing the binding of transducin to the rod outer segment membrane and by altering the GTP/GDP exchange. Analogs of PDE gamma-3 were synthesized to determine the required structure of the PDE gamma-3 region needed for the interaction of PDE gamma with T alpha. The results of these studies indicated that the removal of the positively charged amino acids or any of the potential hydrogen-bonding amino acids increased the I50 for the inhibition of the GTPase activity of T alpha Substitution of the hydrophobic amino acids had no effect. These results indicate the hydrophilic interactions may be essential for the binding of PDE gamma to T alpha and for the inhibition of the GTPase activity of T alpha by PDE gamma. The observed effects of PDE gamma-3 on T alpha and on PDE suggest that PDE gamma is a multifunctional protein which may play more than one role in the deactivation of the retinal transduction cascade.