Drosophila retinal degeneration C (RDGC) is the founding member of the PPEF family of protein phosphatases. RDGC mediates dephosphorylation of the visual pigment rhodopsin and the TRP ion channel. From the rdgC locus, three protein isoforms, termed RDGC-S, -M, and -L, with different N-termini are generated. Due to fatty acylation, RDGC-M and -L are attached to the plasma membrane while RDGC-S is soluble. To assign physiological roles to these RDGC isoforms, we constructed flies that express various combinations of RDGC protein isoforms. Expression of the RDGC-L isoform alone did not fully prevent rhodopsin hyperphosphorylation and resulted in impaired photoreceptor physiology and in decelerated TRP dephosphorylation at Ser936. However, expression of RDGC-L alone as well as RDGC-S/M was sufficient to prevent degeneration of photoreceptor cells which is a hallmark of the rdgC null mutant. Membrane-attached RDGC-M displayed higher activity of TRP dephosphorylation than the soluble isoform RDGC-S. Taken together, in vivo activities of RDGC splice variants are controlled by their N-termini.