The neurotransmitter dopamine has been demonstrated by biochemical, histochemical and immunocytochemical techniques to be unevenly distributed in the mammalian central nervous system. DARPP-32 (dopamine- and cyclic-AMP-regulated phosphoprotein of molecular weight 32,000) is a neuronal phosphoprotein that displays a regional distribution in the mammalian brain very similar to that of dopamine-containing nerve terminals, being highly concentrated in the basal ganglia. The state of phosphorylation of DARPP-32 can be regulated by dopamine and by cyclic AMP in intact nerve cells, suggesting a role for this phosphoprotein in mediating certain of the effects of dopamine on dopaminoceptive cells. The observation that many of the physical and chemical properties of purified DARPP-32 resemble those of phosphatase inhibitor-1 (inhibitor-1), a widely distributed inhibitor of protein phosphatase-1, suggests that DARPP-32 might also function as a phosphatase inhibitor. We report here that DARPP-32 inhibits protein phosphatase-1 at nanomolar concentrations. Moreover, like inhibitor-1, DARPP-32 is effective as an inhibitor in its phosphorylated but not its dephosphorylated form. Thus, the basal ganglia of mammalian brain contain a region-specific neuronal phosphoprotein that is a protein phosphatase inhibitor.