DARPP-32 (dopamine- and cyclic AMP-regulated phosphoprotein of Mr = 32,000) and phosphatase inhibitor-1, two previously characterized inhibitors of protein phosphatase-1, were identified in both the neostriatum and the substantia nigra. Phosphatase inhibitor-1 was partially purified from bovine caudate nucleus and found to be distinct from DARPP-32 in some of its biochemical properties. The neuronal localization of DARPP-32 and phosphatase inhibitor-1 within the rat neostriatum and substantia nigra was investigated by studying the effects of kainic acid. Injection into the neostriatum of kainic acid, which destroys striatonigral neurons and striatonigral fibers, decreased the amounts of DARPP-32 and phosphatase inhibitor-1 to the same extent, both in the lesioned neostriatum and in the ipsilateral substantia nigra. The specific activity of protein phosphatase-1 in the neostriatum was unaffected by kainic acid. The results indicate that, in rat brain, DARPP-32 and phosphatase inhibitor-1 are both present in striatal neurons and in striatonigral fibers, and that they probably coexist in at least a subpopulation of striatonigral neurons. In contrast, protein phosphatase-1 does not appear to be enriched in any specific neuronal subpopulation in the neostriatum.