Using recombinant baculovirus vectors, the three subunits of mouse rod photoreceptor cGMP phosphodiesterase (PDE) (alpha beta gamma 2) have been expressed in insect cells. The recombinant alpha,beta subunits accumulate to 5 mg/liter culture, but most (98%) of the expressed polypeptides are insoluble. In the soluble fraction, individually expressed alpha and beta subunits showed insignificant PDE activity, but coexpression (by coinfection) of alpha beta subunits elevated PDE activity 7-fold and coexpression of alpha beta gamma up to 15-fold. The soluble expressed holoenzyme associated with ROS membranes under isotonic, but not hypotonic, conditions. The Km of the soluble holoenzyme was 11-16 microM both for coexpressed alpha beta subunits and for alpha beta gamma subunits, similar to the Km (6-80 microM) of native PDE. Site-directed mutagenesis of cysteine to serine in the C-terminal CAAX box of both alpha and beta subunits substantially decreased the protein expression level, abolished post-translational isoprenylation, and prevented subunit binding to the rod outer segment (ROS) membranes. The mutant holoenzyme, however, showed a cGMP hydrolytic activity comparable with that of the normal recombinant enzyme. These results suggest that both alpha and beta subunits are required for the formation of a functional enzyme and that isoprenylation of the subunits is essential for membrane association and stability of PDE.