Serine/threonine phosphatase PP1gamma2 is a testis-specific protein phosphatase isoform in spermatozoa. This enzyme appears to play a key role in motility initiation and stimulation. Catalytic activity of PP1gamma2 is higher in immotile compared with motile spermatozoa. Inhibition of PP1gamma2 activity causes both motility initiation and motility stimulation. Protein phosphatases, in general, are regulated by their binding proteins. The objective of this article is to understand the mechanisms by which PP1gamma2 is regulated, first by identifying its regulatory proteins. We had previously shown that a portion of bovine sperm PP1gamma2 is present in the cytosolic fraction of sperm sonicates. We purified PP1gamma2 from soluble bovine sperm extracts by immunoaffinity chromatography. Gel electrophoresis of the purified enzyme showed that it was complexed to a protein 43 M(r) x 10(-3) in size. Microsequencing revealed that this protein is a mammalian homologue of sds22, which is a yeast PP1 binding protein. Phosphatase activity measurements showed that PP1gamma2 complexed to sds22 is catalytically inactive. The complex cannot be activated by limited proteolysis. The complex is unable to bind to microcystin sepharose. This suggests that sds22 may block the microcystin binding site in PP1gamma2. A proportion of PP1gamma2 in sperm extracts, which is presumably not complexed to sds22, is catalytically active. Fluorescence immunocytochemistry was used to determine the intrasperm localization of PP1gamma2 and sds22. Both proteins are present in the tail. They are also present in distinct locations in the head. Our data suggest that PP1gamma2 binding to sds22 inhibits its catalytic activity. Mechanisms regulating sds22 binding to PP1gamma2 are likely to be important in understanding the biochemical basis underlying development and regulation of sperm function.