Site-directed mutagenesis of selected residues of mammalian protein phosphatase 1 (PP-1) has been carried out to further define the mechanism of catalysis, activation by divalent cations, and inhibition by toxins and inhibitory proteins. Mutation of active site residues predicted to bind metals (N124D and H248N) resulted in a large loss of enzyme activity and decreased affinity for metal ions; mutation of residues predicted to bind phosphosubstrate (R96A or R221S) led to a large loss of enzyme activity; and mutation of active site residues (D95A and D208A) resulted in a large loss of enzyme activity. Mutants N124D, H248N, R96A, and R221S exhibited large decreases in sensitivity to the toxins calyculin A, okadaic acid, and microcystin and to thiophospho-DARPP-32. Mutation of Y272 (Y272F) had little effect on activity but resulted in a large decrease in sensitivity to okadaic acid and calyculin A. Mutant D208A exhibited a decrease in sensitivity to okadaic acid and calyculin A, but, paradoxically, the sensitivity to inhibition by thiophospho-DARPP-32 was increased. Mutation of acidic groove residues (E256R, E275R, E252A:D253A, and E252A:D253A:E256R) exhibited little change in enzyme activity and no change in sensitivity to toxins, but increased sensitivity to thiophospho-DARPP-32. These results suggest that toxins and phospho-DARPP-32 interact at the active site of PP-1 in a similar fashion despite their differences in structure. In addition, acidic groove residues appear to influence the interaction of the phosphoinhibitor with the active site of PP-1.