In order to study the role of individual amino acids in the function of the inhibitory subunit, gamma, of retinal rod phosphodiesterase (PDE), the following substitutions were made: Arg-24----Gly, Lys-29----Thr, Arg-33----Gly, Lys-39----Thr, Lys-41----Thr, Lys-44----Thr, Lys-45----Thr, Glu-77----Gly, and Tyr-84----Ala. Deletion of seven C-terminal amino acids (delta 81-87) was also investigated, and the activity of all the mutant PDE gamma forms determined. Expression of the mutant PDE gamma genes was achieved by sequential in vitro transcription and translation. The results suggest that PDE gamma fragment 24-33, which is rich in basic amino acids, and in particular Arg-24, is essential for PDE gamma binding both to the catalytic subunits (alpha and beta) of phosphodiesterase (PDE alpha beta) and to the alpha-subunit of transducin (T alpha), the GTP-binding protein found in retinal rods that activates cyclic GMP PDE. In contrast, the C-terminal fragment of PDE gamma participates in phosphodiesterase inhibition and in binding to T alpha, but not in binding to PDE alpha beta.