The hypothesis that calcineurin, the Ca2+/calmodulin-dependent protein phosphatase, contains an autoinhibitory domain was tested using synthetic peptides corresponding to regions of the carboxyl-terminus of calcineurin. Of the several peptides analyzed, one, containing residues I-T-S-F-E-E-A-K-G-L-D-R-I-N-E-R-M-P-P-R-R-D-A-M-P, gave complete inhibition of its protein phosphatase activity. Using [32P]myosin light chain as substrate an IC50 of about 10 microM was obtained with either native calcineurin, assayed in the presence of Ca2+/calmodulin, or with calcineurin subjected to partial proteolysis which converts it to a fully active phosphatase when assayed in the presence of [ethylenebis (oxyethylenenitrilo)]tetraacetic acid. With 50 mM p-nitrophenylphosphate as substrate an IC50 of about 40 microM was observed. Studies with overlapping peptides suggested that the sequence P-P-R-R-D-A-M-P was essential but not sufficient for the observed inhibition. Kinetic analysis indicated that the inhibition of phosphatase activity was not competitive with respect to [32P]myosin light chain. This peptide did not show significant inhibition of the catalytic subunits of protein phosphatases type I or type IIA or of Ca2+/calmodulin-dependent protein kinase II. These results indicate that amino acids within this sequence of calcineurin constitute a unique autoinhibitory domain which interacts with the active site and is responsible for the low basal phosphatase activity in the absence of Ca2+/calmodulin.