Type-1 protein serine/threonine phosphatases (PP1) are uniquely inhibited by the mammalian proteins, inhibitor-1 (I-1), inhibitor-2 (I-2), and nuclear inhibitor of PP1 (NIPP-1). In addition, several natural compounds inhibit both PP1 and the type-2 phosphatase, PP2A. Deletion of C-terminal sequences that included the beta12-beta13 loop attenuated the inhibition of the resulting PP1alpha catalytic core by I-1, I-2, NIPP-1, and several toxins, including tautomycin, microcystin-LR, calyculin A, and okadaic acid. Substitution of C-terminal sequences from the PP2A catalytic subunit produced a chimeric enzyme, CRHM2, that was inhibited by toxins with dose-response characteristics of PP1 and not PP2A. However, CRHM2 was insensitive to the PP1-specific inhibitors, I-1, I-2, and NIPP-1. The anticancer compound, fostriecin, differed from other phosphatase inhibitors in that it inhibited wild-type PP1alpha, the PP1alpha catalytic core, and CRHM2 with identical IC(50). Binding of wild-type and mutant phosphatases to immobilized microcystin-LR, NIPP-1, and I-2 established that the beta12-beta13 loop was essential for the association of PP1 with toxins and the protein inhibitors. These studies point to the importance of the beta12-beta13 loop structure and conformation for the control of PP1 functions by toxins and endogenous proteins.