In liver and muscle the major active phosphorylase and synthase phosphatase activity is associated with the glycogen particle. When we examined the effect of the inhibitor-1 and modulator protein on the enzyme present in crude glycogen fractions from dog liver, the phosphorylase phosphatase was not or only slightly affected. Since the enzyme isolated from the glycogen complex by DEAE-cellulose chromatography could be inhibited by inhibitor-1 as well as the modulator protein, it was assumed that an unknown mechanism or factor present in the glycogen fraction was responsible for this reduced sensitivity of the protein phosphatase. This led to the discovery (7) of the deinhibitor protein which has now been extensively purified from dog liver. The deinhibitor protein was shown to be thermostable, ethanol- and trichloroacetic acid-resistant, but non-dialyzable and it was destroyed by pronase or trypsin. The apparent molecular weight was estimated at about 17,500 in gel filtration, 8,300 in sodium dodecyl sulfate polyacrylamide gel electrophoresis and 5,500 in sucrose density gradient centrifugation, behavior which is consistent with the assumption that the deinhibitor protein may have little ordered structure. Glycogen synthesis requires both phosphorylase and glycogen synthase as dephosphorylated enzymes. The interaction of the deinhibitor protein with the protein phosphatase brings about several effects which, when considered together, could all facilitate the dephosphorylation of glycogen synthase and phosphorylase. The protein phosphatase present in a resuspended glycogen pellet dephosphorylates inhibitor-1 in the absence of Mn2+. This ability of the phosphatase, which is lost during purification of the enzyme, can be restored upon addition of the deinhibitor protein. Owing to the association of the deinhibitor protein with the active phosphatase the enzyme becomes insensitive to inhibition by inhibitor-1 and the modulator protein, and more resistant to the conversion into the FA-ATP,Mg-dependent form, brought about by the modulator protein. During the activation of the ATP,Mg-dependent phosphatase under conditions where kinase FA is rate limiting, the deinhibitor protein increases the level without affecting the rate of activation.