The regulation of membrane binding and activity of purified CDP:phosphocholine cytidylyl-transferase (CT) by lipid activators and enzyme dephosphorylation was examined. The binding of CT to membranes was analyzed using sucrose-loaded vesicles (SLVs). Binding to phosphatidylcholine vesicles was not detected even at a lipid:protein ratio of approximately 2000 (1 mM PC). CT bound to vesicles containing anionic lipids with apparent molar partition coefficients between 2 x 10(5) and 2 x 10(6), depending on the vesicle charge. The vesicle binding and activation of CT showed very similar sigmoidal dependencies on the lipid negative charge. In addition, diacylglycerol interacted synergistically with anionic phospholipids to stimulate both binding and activation at lower mole percent anionic lipid. These results demonstrate parallel requirements for binding and activity. Dephosphorylation of CT without destabilization was accomplished using the catalytic subunit of protein phosphatase 1. Dephosphorylated CT required a lower mole percent anionic phospholipid than phosphorylated CT for binding to and activation by SLVs. The combination of 10 mol % diacylglycerol and enzyme dephosphorylation shifted the mole percent phosphatidic acid required for half-maximal activation from 25% to 12%. These results suggest a mechanism whereby large changes in CT activity can result from changes in the phosphorylation state combined with small alterations in the membrane content of diacylglycerol. We propose a mechanism whereby dephosphorylation on the domain adjacent to the membrane binding domain increases the affinity of the latter for a negatively charged membrane surface.