Effects of phenylalanine and di- and tetrahydropterins on presteady-state and steady-state catalytic behavior of rat liver phenylalanine hydroxylase are analyzed. From this and previous work (Shiman, R, Xia, T., Hill, M., and Gray, D.(1994) J. Biol. Chem. 269, 24647-24656), which analyzed binding of the same compounds to the enzyme in the absence of catalysis, a model of phenylalanine hydroxylase regulation is proposed. The mechanism appears novel in that 1) one substrate, phenylalanine, is a positive effector (activator), 2) a second substrate, (6R)-tetrahydrobiopterin (BH4), is a negative effector that blocks phenylalanine activation by forming an inactive BH4.enzyme complex, and 3) the BH4.enzyme complex sequesters BH4 and controls its metabolic availability. Reaction progress curves showing regulatory effects of BH4, 7,8-dihydrobiopterin (BH2), and phenylalanine are fit by the model with high precision. Data are presented that the high affinity pterin-binding site on unactivated phenylalanine hydroxylase is the pterin site that regulates catalysis. Occupancy of this site by BH4 or BH2 causes non-cooperative, linear inhibition of phenylalanine activation of the enzyme. All inhibitory effects of BH4 appear due to its binding at the pterin regulatory site on unactivated enzyme. BH2 inhibits by binding at the active site as well as the pterin regulatory site. 6-Methyltetrahydropterin also appears to bind at the pterin regulatory site, but its effect is only seen at high phenylalanine concentrations. Using kinetic constants measured in this and earlier work, quantitative effects of phenylalanine and BH4 regulation on the rate of the phenylalanine hydroxylase reaction in vitro and in vivo are calculated. The effects of formation of the BH4.enzyme complex on free BH4 concentration, on enzyme activity, and on regulation of the rate of phenylalanine hydroxylation in liver are discussed.