The cDNA encoding human brain protein phosphatase inhibitor-1 (I-1) was expressed in Escherichia coli. Following PKA phosphorylation at a threonine, recombinant human I-1 was indistinguishable from rabbit skeletal muscle I-1 as a potent and specific inhibitor of the type-1 protein serine/threonine phosphatase (PP1). N-Terminal phosphopeptides of I-1 that retained the selectivity of intact human I-1 highlighted a functional domain that mediates PP1 inhibition. Substituting alanine in place of threonine-35 eliminated I-1 phosphorylation by PKA and its phosphatase inhibitor activity. An acidic residue was substituted in place of the phosphoacceptor to produce I-1(T35D), a constitutive phosphatase inhibitor. I-1(T35D) was an equally effective inhibitor of PP1 and the type-2 phosphatase, PP2A. However, CNBr digestion of I-1(T35D) yielded an N-terminal peptide that showed 100-fold increased specificity as a PP1 inhibitor. This provided new insight into a unique conformation of the phosphorylated I-1 that accounts for selective inhibition of PP1 activity. Truncation of an active I-1 phosphopeptide identified an N-terminal sequence that was required in addition to threonine-35 phosphorylation to inhibit PP1 activity. Biosensor studies demonstrated that PP1 bound to both phosphorylated and dephosphorylated I-1 and suggested that distinct elements of I-1 structure accounted for PP1 binding and inhibition. Our data point to multiple interactions between the I-1 functional domain and the PP1 catalytic subunit that define this phosphoprotein as a physiological regulator of the type-1 protein phosphatase.