Cyclic-AMP phosphodiesterase (PDE) accumulates during the aggregation stage of Dictyostelium where it functions in maintaining extracellular levels of cyclic AMP (cAMP). The activity decreases during the subsequent multicellular slug stage and then accumulates again during sorocarp construction, but the enzyme is active only in the developing stalk. Because of the possible significance of this localized activity in only one of the two cell types, we have purified the enzyme from the multicellular stage in order to understand its mode of regulation in vivo. We find that the enzyme which is localized in the prestalk cells is similar in many respects to the extracellular PDE which is active at the aggregation stage. The enzyme from both stages is inhibited by a low molecular weight protein. The mechanism of this inhibition is through a shift in the apparent Km for cAMP from micromolar to millimolar levels. The inhibited form of the enzyme can be activated by preincubation with MgSO4 and dithiothreitol (DTT). This activation treatment releases the inhibitor from the enzyme, thus restoring the low Km form, changes the molecular weight of the culmination stage enzyme from 95 000-100 000 to 68 000 by releasing the Mr 35 000-40 000 inhibitor protein, and causes irreversible loss of inhibitor activity. Although the inhibitor could be obtained in high yield from the aggregation stage by simply heating the extracellular fluid, it could not be detected from culmination stage extracts when prepared by this method. However, inclusion of calcium in the extraction buffer resulted in release of inhibitor from both heated and nonheated samples. The results indicate that the stalk cell specific PDE is regulated similarly to the aggregation stage PDE and opens the possibility of differential regulation of PDE in the two cell types.