Regulation of protein phosphatase 1 (PP1) by protein inhibitors and targeting subunits has been previously studied through the use of recombinant protein expressed in Escherichia coli. This preparation is limited by several key differences in its properties compared with native PP1. In the present study, we have analyzed recombinant PP1 expressed in Sf9 insect cells using baculovirus. Sf9 PP1 exhibited properties identical to those of native PP1, with respect to regulation by metals, inhibitor proteins, and targeting subunits, and failure to dephosphorylate a phosphotyrosine-containing substrate or phospho-DARPP-32 (Dopamine and cAMP-regulated phosphoprotein, M(r) 32,000). Mutations at Y272 in the beta12/beta13 loop resulted in a loss of activity and reduced the sensitivity to thiophospho-DARPP-32 and inhibitor-2. Mutations of Y272 also increased the relative activity toward a phosphotyrosine-containing substrate or phospho-DARPP-32. Mutation of acidic groove residues caused no change in sensitivity to thiophospho-DARPP-32 or inhibitor-2, but one mutant (E252A:D253A:E256R) exhibited an increased K(m) for phosphorylase a. Several PP1/PP2A chimeras were prepared in which C-terminal sequences of PP2A were substituted into PP1. Replacement of residues 274-330 of PP1 with the corresponding region of PP2A resulted in a large loss of sensitivity to thiophospho-DARPP-32 and inhibitor-2, and also resulted in a loss of interaction with the targeting subunits, spinophilin and PP1 nuclear targeting subunit (PNUTS). More limited alterations in residues in beta12, beta13, and beta14 strands highlighted a key role for M290 and C291 in the interaction of PP1 with thiophospho-DARPP-32, but not inhibitor-2.