The photoreceptor 3':5'-cyclic nucleotide phosphodiesterase (PDE) is the central enzyme of visual excitation in rod photoreceptors. The hydrolytic activity of PDE is precisely regulated by its inhibitory gamma subunit (Pgamma), which binds directly to the catalytic site. We examined the inhibition of frog rod outer segment PDE by endogenous Pgamma, as well as by synthetic peptides corresponding to its central and C-terminal domains, to determine whether the non-catalytic cGMP-binding sites on the catalytic alphabeta dimer of PDE allosterically regulate PDE activity. We found that the apparent binding affinity of Pgamma for PDE was 28 pM when cGMP occupied the non-catalytic sites, whereas Pgamma had an apparent affinity only 1/16 of this when the sites were empty. The elevated basal activity of PDE with empty non-catalytic sites can be decreased by the addition of nanomolar levels of cGMP, demonstrating that the high-affinity non-catalytic sites on the PDE catalytic dimer mediate this effect. No evidence for a direct allosteric effect of the non-catalytic sites on catalysis could be detected for the activated enzyme lacking bound Pgamma. The intrinsic affinity of a synthetic C-terminal (residues 63-87) Pgamma peptide to bind and to inhibit the hydrolytic activity of activated PDE was enhanced 300-fold in the presence of cGMP compared with cAMP. We conclude that the binding of cGMP to the non-catalytic sites of PDE induces an allosteric change in the structure of the catalytic domain that greatly enhances the interaction of the C-terminus of Pgamma with the catalytic domain.