The interaction between the GTP-bound form of the transducin alpha-subunit (G alpha t) and the gamma-subunit (P gamma) of cGMP phosphodiesterase (PDE) is a key event in effector activation during photon signal transduction. The carboxyl-terminal half of P gamma is involved in interaction with G alpha t as well as in inhibition of PDE activity. Here we have utilized a combination of synthetic peptide and mutagenesis approaches to localize specific regions of the carboxyl-terminal region of P gamma interacting with G alpha t and P alpha beta and have determined residues involved in inhibition of PDE activity. We found that synthetic peptide corresponding to residues 68-87 of P gamma completely inhibit trypsin-activated PDE. The peptide P gamma-63-87 bound to G alpha t GTP gamma S with a Kd of 2.5 microM, whereas the binding of P gamma-68-87 to G alpha tGTP gamma S was approximately 15-fold less (Kd = 40 microM) suggesting that carboxyl-terminal P gamma region 68-87 contains a site for interaction with P alpha beta and also a part of the alpha t binding site. To map G alpha t and P alpha beta sites more precisely within the carboxyl-terminal region, a set of carboxyl-terminal mutants was generated by site-directed mutagenesis. Deletion of residues 63-69 and 70-76 diminished the binding of mutants to alpha t while binding to carboxyl-terminally truncated mutants lacking up to 11 amino acid residues was unchanged. In contrast, carboxyl-terminal truncations of P gamma from delta 1 to delta 11 resulted in a gradual decrease of its inhibitory activity. Thus, the extreme carboxyl-terminal hydrophobic sequence -Ile86-Ile87 together with 9 adjacent residues provides inhibitory interaction of P gamma with P alpha beta. The carboxyl-terminal G alpha tGTP gamma S binding site of P gamma is different from but adjacent to its PDE inhibitory site. During the visual transduction process, G alpha tGTP likely binds to this region of P gamma inducing a displacement of the extreme carboxyl terminus from the inhibitory site on P alpha beta, leading to PDE activation.