A heat stable protein, which is a specific inhibitor of protein phosphatase III, was purified 700 fold from skeletal muscle by a procedure that involved heat treatment at 95°C, chromatography on DEAE cellulose and gel filtration on Sephadex G 100. The final step completely resolved the protein phosphatase inhibitor from the protein inhibitor of cyclic AMP dependent protein kinase. The phosphorylase phosphatase, β phosphorylase kinase phosphatase, glycogen synthase phosphatase 1 and glycogen synthase phosphatase 2 activities of protein phosphatase III [Antoniw, J.F., Nimmo, H.G., Yeaman, S.J. & Cohen, P. (1977) Biochem. J. 162, 423-433] were inhibited in a very similar manner by the protein phosphatase inhibitor and at least 95% inhibition was observed at high concentrations of inhibitor. The two forms of protein phosphatase III, termed IIIA and IIIB, were equally susceptible to the protein phosphatase inhibitor. The protein phosphatase inhibitor was at least 200 times less effective in inhibiting the activity of protein phosphatase I and protein phosphatase II. The high degree of specificity of the inhibitor for protein phosphatase III was used to show that 90% of the phosphorylase phosphatase and glycogen synthase phosphatase activities measured in muscle extracts are catalysed by protein phosphatase III. Protein phosphatase III was tightly associated with the protein glycogen complex that can be isolated from skeletal muscle, whereas the protein phosphatase inhibitor and protein phosphatase II were not. The results provide further evidence that the enzyme that catalyses the dephosphorylation of the α subunit of phosphorylase kinase (protein phosphatase II) and the enzyme that catalyses the dephosphorylation of the β subunit of phosphorylase kinase (protein phosphatase III) are distinct. The results suggest that the protein phosphatase inhibitor may be a useful probe for r113w4of differentiating different classes of protein phosphatases in mammalian cells.