The steady-state interaction between protein phosphatase-1 and its two inhibitor proteins was studied in vitro at low enzyme concentrations where the assumptions of the Michaelis-Menten equation appeared to be valid. Under these conditions, and in the absence of divalent cations, inhibitor-1 behaved as a mixed inhibitor using phosphorylase alpha as a substrate, whereas inhibitor-2 was a competitive inhibitor. The results demonstrate that inhibitor-1 and inhibitor-2 do not interact with protein phosphatase-1 in an identical manner. Inhibitor-1 was only a substrate for protein phosphatase-1 in the presence of Mn2+, and its dephosphorylation was inhibited competitively by inhibitor-2 (Kis = 8 nM). Inhibitor-1 did not inhibit its own dephosphorylation in the presence of Mn2+. Its Km as a substrate (190 nM) was very much higher than its Ki as an inhibitor (1.5-7.5 nM). The results are consistent with a model in which a single binding site for inhibitor-1 is present on protein phosphatase-1, distinct from the binding site for phosphorylase alpha. It is envisaged that the binding of inhibitor-1 to this site not only inhibits the dephosphorylation of other substrates but permits access of its phosphothreonine to the same catalytic group(s) responsible for the dephosphorylation of other substrates. G-substrate, a protein phosphorylated exclusively on threonine residues, did not inhibit the dephosphorylation of phosphorylase alpha and its dephosphorylation was potently inhibited by inhibitor-1 or inhibitor-2. The role of the phosphothreonine residue in inhibitor-1 is discussed in the light of these results.