The glycogen-associated form of protein phosphatase-1 (PP-1G) comprises a 37-kDa catalytic (C) subunit and a 161-kDa glycogen-binding (G) subunit. In the preceding paper in this issue of the journal we showed that the C subunit is released from PP-1G in response to phosphorylation of the G subunit by cAMP-dependent protein kinase. We now show that at 0.15-0.2 M KCl the phosphorylase phosphatase activity of glycogen-bound PP-1G is 5-8 times higher than that of released C subunit or unbound PP-1G, which are strongly inhibited at these ionic strengths. The activity of glycogen-bound PP-1G towards glycogen synthase was about 5-fold higher than that of released C subunit at 0.15M KCl. Studies with glycogen-bound substrates and myosin P-light chain (which does not interact with glycogen) indicated that PP-1G activity is only enhanced compared to free C subunit at near physiological ionic strength and when both PP-1G and substrate are glycogen-associated. The inhibition by increasing ionic strength and enhanced activity upon binding to glycogen reflected changes in K'm, but not Vmax. From the determined specificity constant, k'cat/K'm approximately 4 x 10(6) s-1 M-1, it was calculated that at physiological levels of glycogen-bound PP-1G (200 nM) and phosphorylase (70 microM), dephosphorylation of the latter could occur with a half time of 15 s, sufficient to account for inactivation rates in vivo. The much higher catalytic efficiency of glycogen-bound PP-1G toward the glycogen-metabolising enzymes at physiological ionic strength compared to free C subunit substantiates the role of PP-1G in the regulation of these substrates, and establishes a novel mechanism for selectively regulating their phosphorylation states in response to adrenalin and other factors affecting phosphorylation of the G subunit.