Fat body glycogen phosphorylase of overwintering insects is considerably activated by cold; two enzymes, phosphorylase kinase and phosphatase, may be involved in this activation. In this paper, we demonstrate the mechanism by which phosphorylase is activated by cold. Initially, a latent phosphorylase phosphatase was stimulated by freeze-thawing with 67% saturated ammonium sulphate and mercaptoethanol, enabling partial purification and characterization of this enzyme. Unlike the phosphorylase kinase studied previously, the phosphatase did not function at 0°C. There was no appreciable activation of phosphorylase at 25°C if the phosphatase was present, whereas the phosphorylase was greatly activated at 0°C even in the presence of phosphatase. It is suggested that ATP regulates phosphorylase activity through its effect on kinase and phosphatase. The activation of fat body phosphorylase that naturally occurs in overwintering insects is also discussed.