Perfused livers from normal and alloxan-diabetic rats were studied to determine whether the diabetes-related decrease in glycogen synthase phosphatase was due to an alteration of the synthase molecule, an increase in synthase phosphatase activity inhibition by phosphorylase a, or generation of inhibitor of the phosphatase. With purified rat liver synthase as substrate for the phosphatase, the diabetic tissue remained 90-95% deficient in the ability to catalyze synthase D to I conversion, showing that the defect cannot be solely due to an altered substrate. When synthase phosphatase assays were carried out in the presence of rat liver glycogen phosphorylase antiserum, phosphatase activity remained 70-75% deficient in diabetic tissue. Therefore, the defect cannot be attributed to increased inhibition of synthase phosphatase by increased amounts of phosphorylase a. When synthase phosphatase assays were run by mixing extracts from normal and diabetic livers, phosphatase activity was additive, indicating that a phosphatase inhibitor was probably not involved in the phosphatase deficiency in the diabetic. These data are consistent with the hypothesis that the diabetes-related defect in glucose regulation of hepatic glycogen synthase is due to a molecular alteration or a deficiency of a specific glycogen synthase phosphatase.