Phosphatase inhibitor 2 was mutagenized and expressed in Escherichia coli to produce a protein with a single cysteinyl residue at position 129. The newly introduced sulfhydryl group was labeled with a maleimide derivative of coumarin (CPM). The resulting fluorescent inhibitor 2 molecule (CPM-I2) retains biological activity and binds to the catalytic subunit of type 1 phosphatase (PP1-C) with a K(d) similar to the K(i) of native I2 (2-3 nM). Fluorescence anisotropy data indicate that kinase F(A) (glycogen synthase kinase 3) does not dissociate the CPM-I2.PP1-C complex but rather causes a conformational change in the I2 molecule that is retained even after the CPM-I2 is displaced by an excess of native I2. The fluorescence data presented here also indicate that okadaic acid and I2 are competitive for binding to PP1-C, even after kinase F(A) treatment of the CPM-I2.PP1-C complex.