Soluble guanylyl cyclase is a heterodimer consisting of an alpha and beta subunit and stimulation occurs upon binding of NO to a prosthetic group. Little is known about the localization of catalytic and regulatory domains within the subunits of soluble guanylyl cyclase. We used deletion mutagenesis to identify the regions of alpha 1 and beta 1 subunits that are responsible for cGMP production or NO-heme-mediated activation. The amino terminus of the beta 1 subunit was necessary for NO stimulation since deletion of the 64 NH2-terminal amino acids resulted in a mutant with intact basal activity but complete loss of NO activation. The amino terminus of the alpha 1 subunit also appeared to be essential for NO sensitivity since deletion of 131 NH2-terminal amino acids of alpha 1 led to markedly reduced NO activation. These results suggest that NH2-terminal regions of alpha 1 and beta 1 are involved in NO-heme-mediated signal transduction. The NH2 terminally truncated beta 1 subunit exerted a dominant negative effect exclusively on the NO-stimulated activity of the wild type enzyme, further underlining that the regulatory domain is located within the NH2 terminus of the enzyme. Aside for the structural implications, the mutant represents a powerful tool to investigate nitric oxide-sensitive signaling pathways. Coexpression of the COOH-terminal halves of alpha 1 and beta 1 were sufficient for basal cGMP production while either of the halves expressed alone was inactive. Therefore the COOH-terminal regions appear to contain sufficient information for dimerization and basal enzymatic activity. Thus, we provide the first evidence that the regulatory and catalytic properties of soluble guanylyl cyclase can be attributed to different regions of the subunits and that the catalytic domain can be functionally expressed separately from the NH2-terminal regulatory domain. Taken together with findings on the membrane bound enzyme form, guanylyl cyclases, appear to resemble fusion proteins where different regulatory domains have been joined with a common cGMP-forming segment.