Changes in the glucosylation state of the glycogen primer, glycogenin, or its association with glycogen synthase are potential sites for regulation of glycogen synthesis. In this study we found no evidence for hormonal control of the glucosylation state of glycogenin in hepatocytes. However, using a modified glycogen synthase assay that separates the product into acid-soluble (glycogen) and acid-insoluble (proteoglycogen) fractions we found that insulin and glucagon increase and decrease, respectively, the association of glycogen synthase with an acid-insoluble substrate. The latter fraction had a higher affinity for UDP-glucose and accounted for between 5 and 21% of total activity depending on hormonal conditions. Phosphorylase overexpression mimicked the effect of glucagon. It is concluded that phosphorylase activation or overexpression causes dissociation of glycogen synthase from proteoglycogen causing inhibition of initiation of glycogen synthesis.