The physiological state of the cell is controlled by signal transduction mechanisms which regulate the balance between protein kinase and protein phosphatase activities. Here we report that a single protein can, depending on which particular amino-acid residue is phosphorylated, function either as a kinase or phosphatase inhibitor. DARPP-32 (dopamine and cyclic AMP- regulated phospho-protein, relative molecular mass 32,000) is converted into an inhibitor of protein phosphatase 1 when it is phosphorylated by protein kinase A (PKA) at threonine 32 (refs 2, 3). We find that DARPP-32 is converted into an inhibitor of PKA when phosphorylated at threonine 75 by cyclin-dependent kinase 5 (Cdk5). Cdk5 phosphorylates DARPP-32 in vitro and in intact brain cells. Phospho-Thr 75 DARPP-32 inhibits PKA in vitro by a competitive mechanism. Decreasing phospho-Thr 75 DARPP-32 in striatal slices, either by a Cdk5-specific inhibitor or by using genetically altered mice, results in increased dopamine-induced phosphorylation of PKA substrates and augmented peak voltage-gated calcium currents. Thus DARPP-32 is a bifunctional signal transduction molecule which, by distinct mechanisms, controls a serine/threonine kinase and a serine/threonine phosphatase.