Sphingosine inhibited protein kinase C activity and phorbol dibutyrate binding. When the mechanism of inhibition of activity and phorbol dibutyrate binding was investigated in vitro using Triton X-100 mixed micellar methods, sphingosine inhibition was subject to surface dilution; 50% inhibition occurred when sphingosine was equimolar with sn-1,2-dioleoylglycerol (diC18:1) or 40% of the phosphatidylserine (PS) present. Sphingosine inhibition was modulated by Ca2+ and by the mole percent of diC18:1 and PS present. Sphingosine was a competitive inhibitor with respect to diC18:1, phorbol dibutyrate, and Ca2+. Increasing levels of PS markedly reduced inhibition by sphingosine. Since protein kinase C activity shows a cooperative dependence on PS, the kinetic analysis of competitive inhibition was only suggestive. Sphingosine inhibited phorbol dibutyrate binding to protein kinase C but did not cause protein kinase C to dissociate from the mixed micelle surface. Sphingosine addition to human platelets blocked thrombin and sn-1,2-dioctanoylglycerol-dependent phosphorylation of the 40-kDa (47 kDa) dalton protein. Moreover, sphingosine was subject to surface dilution in platelets. The mechanism of sphingosine inhibition is discussed in relation to a previously proposed model of protein kinase C activation. The possible physiological role of sphingosine as a negative effector of protein kinase C is suggested and a plausible cycle for its generation is presented. The potential physiological significance of sphingosine inhibition of protein kinase C is further established in accompanying papers on HL-60 cells (Merrill, A. H., Jr., Sereni, A. M., Stevens, V. L., Hannun, Y. A., Bell, R. M., Kinkade, J. M., Jr. (1986) J. Biol. Chem. 261, 12010-12615) and human neutrophils (Wilson, E., Olcott, M. C., Bell, R. M., Merrill, A. H., Jr., and Lambeth, J. D. (1986) J. Biol. Chem. 261, 12616-12623). These results also suggest that sphingosine will be a useful inhibitor for investigating the function of protein kinase C in vitro and in living cells.