The central enzyme of the visual transduction cascade, cGMP phosphodiesterase (PDE6), is regulated by its gamma-subunit (Pgamma), whose inhibitory constraint is released upon binding of activated transducin. It is generally believed that the last four or five C-terminal amino acid residues of Pgamma are responsible for blocking catalysis. In this paper, we showed that the last 10 C-terminal residues (Pgamma78-87) are the minimum required to completely block catalysis. The kinetic mechanism of inhibition by the Pgamma C terminus depends on which substrate is undergoing catalysis. We also discovered a second mechanism of Pgamma inhibition that does not require this C-terminal region and that is capable of inhibiting up to 80% of the maximal cGMP hydrolytic rate. Furthermore, amino acids 63-70 and/or the intact alpha2 helix of Pgamma stabilize binding of C-terminal Pgamma peptides by 100-fold. When PDE6 catalytic subunits were reconstituted with portions of the Pgamma molecule and tested for activation by transducin, we found that the C-terminal region (Pgamma63-87) by itself could not be displaced but that transducin could relieve inhibition of certain Pgamma truncation mutants. Our results are consistent with two distinct mechanisms of Pgamma inhibition of PDE6. One involves direct interaction of the C-terminal residues with the catalytic site. A second regulatory mechanism may involve binding of other regions of Pgamma to the catalytic domain, thereby allosterically reducing the catalytic rate. Transducin activation of PDE6 appears to require interaction with both the C terminus and other regions of Pgamma to effectively relieve its inhibitory constraint.