The molecular cloning of protein phosphatase 2A subunits from Drosophila has provided insights into the role this enzyme plays in developmental processes and in cell cycle regulation. The trimeric holoenzyme containing the catalytic, 65-kDa and 55-kDa regulatory subunits appears to be preferentially expressed in proliferative organs such as the gonads, in the developing nervous system and in early syncytial embryos. Analysis of mutant flies affected in the expression of the 55-kDa regulatory subunit suggests that the holoenzyme containing this subunit plays a pivotal role in cell cycle regulation and cell fate determination. The severity of the mutant phenotype correlates with a decrease in 55-kDa subunit protein levels and reduced protein phosphatase activity towards p34cdc2 phosphorylated proteins. The data support the idea that the 'variable' subunits of protein phosphatase 2A holoenzymes play a critical role in directing substrate specificity.