Inhibitor-2, purified by an improved procedure, was used to identify protein phosphatases capable of catalysing its dephosphorylation. The results showed that, under our experimental conditions, protein phosphatases-1, 2A and 2B were the only significant protein phosphatases in rabbit skeletal muscle extracts acting on this substrate. Protein phosphatases-1 and 2A accounted for all the inhibitor-2 phosphatase activity in the absence of Ca2+ (resting muscle), and the potential importance of these enzymes in vivo is discussed. Protein phosphatase-2B, a Ca2+-calmodulin-dependent enzyme, could account for up to 30% of the inhibitor-2 phosphatase activity in contracting muscle. The Km of protein phosphatase-1 for inhibitor-2 (40 nM) was 100-fold lower than the Km for phosphorylase a (4.8 microM). This finding, coupled with the failure of inhibitor-2 to inhibit its own dephosphorylation, suggests that inhibitor-2 is dephosphorylated at one of the two sites on protein phosphatase-1 involved in preventing the dephosphorylation of other substrates. The dephosphorylation of inhibitor-2 by protein phosphatase-1 was also unaffected by inhibitor-1, suggesting that the phosphorylation state of inhibitor-2 is unlikely to be controlled by cyclic AMP in vivo.