The rod photoreceptor phosphodiesterase (PDE) is unique among all known vertebrate PDE families for several reasons. It is a catalytic heterodimer (alphabeta); it is directly activated by a G-protein, transducin; and its active sites are regulated by inhibitory gamma subunits. Rod PDE binds cGMP at two noncatalytic sites on the alphabeta dimer, but their function is unclear. We show that transducin activation of frog rod PDE introduces functional heterogeneity to both the noncatalytic and catalytic sites. Upon PDE activation, one noncatalytic site is converted from a high affinity to low affinity state, whereas the second binding site undergoes modest decreases in binding. Addition of gamma to transducin-activated PDE can restore high affinity binding as well as reducing cGMP exchange kinetics at both sites. A strong correlation exists between cGMP binding and gamma binding to activated PDE; dissociation of bound cGMP accompanies gamma dissociation from PDE, whereas addition of either cGMP or gamma to alphabeta dimers can restore high affinity binding of the other molecule. At the active site, transducin can activate PDE to about one-half the turnover number for catalytic alphabeta dimers completely lacking bound gamma subunit. These results suggest a mechanism in which transducin interacts primarily with one PDE catalytic subunit, releasing its full catalytic activity as well as inducing rapid cGMP dissociation from one noncatalytic site. The state of occupancy of the noncatalytic sites on PDE determines whether gamma remains bound to activated PDE or dissociates from the holoenzyme, and may be relevant to light adaptation in photoreceptor cells.