Glycogen metabolism in mammalian skeletal muscle is controlled by protein phosphorylation and dephosphorylation reactions which involve three protein kinases and two protein phosphatases. Cyclic AMP dependent protein kinase activates phosphorylase kinase and inactivates glycogen synthetase. However, glycogen synthetase is also inactivated by a second enzyme termed glycogen synthetase kinase-2. Glycogen synthetase kinase-2 does not phosphorylate phosphorylase kinase or phosphorylase, and conversely, phosphorylase kinase activates phosphorylase but does not phosphorylate glycogen synthetase. The dephosphorylation and inactivation of phosphorylase and phosphorylase kinase (through the dephosphorylation of the β-subunit), and the dephosphorylation and reactivation of glycogen synthetase (phosphorylated by either cyclic AMP dependent protein kinase or glycogen synthetase kinase-2) is catalyzed by a single major enzyme in skeletal muscle, termed protein phosphatase-III. The dephosphorylation of the α-subunit of phosphorylase kinase, which converts the phosphorylase kinase to a form which is a poorer substrate for protein phosphatase-III, is catalyzed by a distinct enzyme, termed protein phosphatase-II. Protein phosphatase-III is subject to inhibition by two heat stable proteins which are present in skeletal muscle, termed inhibitor-1 and inhibitor-2. Inhibitor-1 only inhibits protein phosphatase-III after it has been phosphorylated by the action of cyclic AMP dependent protein kinase (Huang and Glinsmann, Europ. J. Biochem. 70, 419-426 (1976)). Inhibitor-1 cannot be phosphorylated either by phosphorylase kinase or glycogen synthetase kinase-2. Inhibitor-1 and also inhibitor-2 inactivate all the activities of protein phosphatase-III in an identical manner. Inhibitor-2 is over 200-fold less effective in inhibiting protein phosphatase-II than protein phosphatase-III. Inhibitor-1 has been purified 4000-fold to homogeneity from rabbit skeletal muscle. The molar concentration of this protein in vivo is at least as high as protein phosphatase-III. The amino acid composition showed the complete absence of cysteine, tyrosine and tryptophan, a very low content of hydrophobic amino acids, while glutamic acid and proline together accounted for almost one third of the residues. The molecular weight was found to be 19,200 by sedimentation equilibrium and 20,800 from amino acid analysis. These values were much lower than the apparent molecular weight of 61,000 determined by gel filtration. The gel filtration behavior, stability to heating at 100°C and amino acid composition suggest that inhibitor-1 is not a globular protein. The active form of inhibitor-1 contained one molecule of phosphate covalently bound per molecule of protein, and the amino acid sequence at the phosphorylation site was shown to be: ile-arg-arg-arg-arg-pro-thr(P)-pro-ala-thr-This phosphorylated decapeptide was more than 1,000-fold less inhibitory than the native phosphoprotein, which inactivated protein phosphatase-III by 50% at a concentration of only 7 × 10-9 m in the standard assay. The possible physiological roles of inhibitor-1 and inhibitor-2 are discussed.