Inhibitor-3 is a potent inhibitor of protein phosphatase-1, with an IC(50) in the nanomolar range for the inhibition of the dephosphorylation of phosphorylase a. Human Inhibitor-3 possesses a putative protein phosphatase-1 binding motif, (39)KKVEW(43). We provide direct evidence that this sequence is involved in PP1 interaction by examining the effects of site-directed mutations of Inhibitor-3 on its ability to inhibit protein phosphatase-1. A second interaction site whose deletion led to loss of inhibitory potency was identified between residues 65 and 77. The existence of two interaction sites is consistent with the high inhibitory potency of Inhibitor-3, and with current models for other inhibitor and targeting proteins that interact with protein phosphatase-1 with high affinity.