The presence of endogenous modulators of protein kinase C (PKC) in human placenta has not been reported. The specific activity of PKC in human placental cytosol was 20.52 +/- 1.8 pmol/min x mg protein. Partial purification of placental cytosol on diethylaminoethyl cellulose (DEAE) resulted in recovery of 145 per cent of original enzyme activity. Placental cytosol mixed with a control preparation of PKC significantly inhibited the control enzyme activity (control 42.42 +/- 2.8 pmol/min; control+placental cytosol 27.44 +/- 2.8 pmol/min, P < 0.05). The PKC-inhibitory activity was abolished by the addition of phosphatase inhibitors calyculin A (0.09 nM), microcystin LR (0.8 nM), and okadaic acid (0.4 nM). Protein substrates phosphorylated by PKC were rapidly dephosphorylated upon the addition of placental cytosol; this dephosphorylation was prevented by the presence of calyculin A and was removed by fractionation of placental cytosol on DEAE. Protein but not peptide substrate supported both the PKC-inhibitory activity and the dephosphorylation of PKC-phosphorylated substrates. The placental serine-threonine protein phosphatase was active against phosphorylase a, but not against substrate phosphorylated by cAMP-dependent protein kinase. These data indicate that the human placenta contains an endogenous inhibitor of PKC which interacts with substrate rather than with the PKC and that the inhibitor is a protein phosphatase.