Lipomodulin, purified to near homogeneity from rabbit peritoneal neutrophils, was phosphorylated by cyclic AMP-dependent protein kinase from bovine heart with concomitant loss of its ability to inhibit phospholipase A2 from porcine pancreas. Phosphorylation of lipomodulin was confirmed by the incorporation of 32P from [gamma-32P]ATP. To demonstrate that lipomodulin undergoes phosphorylation in vivo, rabbit peritoneal neutrophils were incubated with 32P and lipomoculin was isolated by immunoprecipitation with serum from a patient with systemic lupus erythematosus which has anti-lipomodulin antibody. Analysis of 32P-labeled immunoprecipitates by sodium dodecyl sulfate electrophoresis revealed a single peak of radioactivity that comigrated with [35S]methionine-labeled lipomodulin. The administration of a chemoattractant, N-formyl-methionyl-leucyl-phenylalanine to intact rabbit neutrophils, resulted in a marked increase in arachidonate release from the cells and an increase in 32P incorporation into lipomodulin. A close correlation was found between the extent of phosphorylation of lipomodulin and the rate of arachidonate release. Phosphorylation of lipomodulin in neutrophils gradually returned to the control level with corresponding cessation of arachidonate release. In contrast to the in vitro system, phosphorylation of lipomodulin and release of arachidonic acid from peptide-stimulated neutrophils required Ca2+ entry into the cells. These results suggest that the phosphorylation-dephosphorylation of lipomodulin, phospholipase inhibitory protein, is an important mechanism for chemotactic receptor-mediated regulation of arachidonic acid release in rabbit neutrophils.