Retinal rod-outer-segment phosphodiesterase (PDE) is a heterotetramer consisting of two similar, but not identical, catalytic subunits (alpha and beta) and two identical inhibitory subunits (gamma 2). Previously, we have reported that the site of PDE alpha/beta interaction with PDE gamma is located within residues 54-87 [Cunnick, Hurt, Oppert, Sakamoto & Takemoto (1990) Biochem. J. 271, 721-727]. The site for PDE gamma interaction with transducin alpha (T alpha) was found to encompass residues 24-45 of PDE gamma [Morrison, Cunnick, Oppert & Takemoto (1989) J. Biol. Chem. 264, 11671-11681]. In order to identify binding sites and other functional domains of PDE gamma, the three peptides which are encoded by the three exons of the PDE gamma gene were synthesized chemically. These exons encode for residues 1-49, 50-62 and 63-87 of bovine PDE gamma [Piriev, Purishko, Khramtsov & Lipkin (1990) Dokl. Akad. Nauk. SSSR 315, 229-230]. The peptide encompassing residues 63-87 was inhibitory in a PDE assay, whereas peptides 1-49 and 50-62 had no effect. However, both peptides 1-49 and 63-87 bound to PDE alpha/beta in a solid-phase binding assay. Only peptide 1-49 bound to T alpha.GTP[S] (GTP[S] is guanosine 5'-[gamma-thio]triphosphate). These data confirm that the inhibitory region of PDE gamma is encoded by exon 3 (residues 63-87), whereas a separate binding site for PDE alpha/beta and for T alpha.GTP[S] is encoded by exon 1 (residues 1-49). To study further the structure-function relationship of PDE gamma, this entire protein and two mutants were chemically synthesized. One mutant (-CT) lacked residues 78-87, whereas another replaced tyrosine-84 with glycine (TYR-84). Whereas the synthetic PDE gamma inhibited PDE alpha/beta catalytic activity, the -CT and TVR-84 mutants did not. All three synthetic proteins bound to both PDE alpha/beta and and T alpha.GTP[S]. These data confirm the presence of an alternative binding site on PDE gamma and demonstrate the importance of tyrosine-84 in PDE gamma inhibitory activity.