We report the carboxylmethylation of a 36-kDa protein in intact normal rat islets and clonal beta (INS-1) cells. This protein was predominantly cytosolic. Its carboxylmethylation, as assessed by vapor phase equilibration assay, was resistant to inhibition by N-acetyl-S-trans, trans-farnesyl-L-cysteine, a competitive substrate for cysteine methyl transferases. These data suggest that the methylated C-terminal amino acid is not cysteine. The methylated protein was identified as the catalytic subunit of protein phosphatase 2A (PP2Ac) by immunoblotting. The carboxylmethylation of the PP2Ac increased its catalytic activity, suggesting a key role in the functional regulation of PP2A. Therefore, we studied okadaic acid, a selective inhibitor of PP2A that acts by an unknown mechanism. Okadaic acid (but not 1-nor-okadaone, its inactive analog) inhibited (Ki = 10 nM) the carboxylmethylation of PP2Ac and phosphatase activity in the cytosolic fraction (from normal rat islets and clonal beta-cells) as well as in intact rat islets. Furthermore, methylated PP2Ac underwent rapid demethylation (t 1/2 = 40 min) catalyzed by a methyl esterase localized in islet homogenates. Ebelactone, a purported inhibitor of methyl esterases, significantly delayed (> 200 min) the demethylation of PP2Ac. Furthermore, ebelactone reversibly inhibited glucose- and ketoisocaproate-induced insulin secretion from normal rat islets. These data identify, for the first time, a methylation-demethylation cycle for PP2Ac in the beta-cell and suggest a key functional relationship between PP2A activity and the carboxylmethylation of its catalytic subunit. These findings thus suggest a negative modulatory role for PP2A in nutrient-induced insulin exocytosis.