Protein phosphatase 1, one of four major protein phosphatases involved in cellular regulation, was phosphorylated in vitro by pp60v-src, the transforming gene product of Rous sarcoma virus. Phosphorylation was accompanied by a loss of protein phosphatase activity. The inactivation of protein phosphatase 1 was time-dependent and the extent of inactivation correlated closely with the stoichiometry of phosphorylation. Under optimal conditions, 0.34 +/- 0.01 mol of phosphate were incorporated per mol of protein phosphatase and the activity of the enzyme was decreased by 39 +/- 2%. The inactivation required the presence of both MgATP and pp60v-src. There was no loss of activity when adenosine 5'-[beta gamma-imido]triphosphate was used in place of ATP. Phosphorylation of protein phosphatase 1 occurred exclusively on tyrosine residues and was blocked by specific antibodies to pp60v-src. During preincubation of pp60v-src at 41 degrees C, its protein kinase activity towards casein was lost rapidly. The ability of pp60v-src to phosphorylate and inactivate protein phosphatase 1 declined in parallel with the loss of casein kinase activity. Limited chymotryptic digestion of 32P-labeled protein phosphatase 1 (Mr 37,000) resulted in its quantitative conversion to a Mr 33,000 species. Conversion to this species was accompanied by the loss of 32P-labeling and by reactivation of the protein phosphatase. When various concentrations of chymotrypsin were used in the digestion, there was a close correlation between conversion to the Mr 33,000 species and the restoration of protein phosphatase activity. pp60v-src was unable to phosphorylate or inactivate a partially proteolyzed species of protein phosphatase 1 (Mr 33,000/34,000).