In Saccharomyces cerevisiae, the protein phosphatase type 1 (PP1)-binding protein Reg1 is required to maintain complete repression of ADH2 expression during growth on glucose. Surprisingly, however, mutant forms of the yeast PP1 homologue Glc7, which are unable to repress expression of another glucose-regulated gene, SUC2, fully repressed ADH2. Constitutive ADH2 expression in reg1 mutant cells did require Snf1 protein kinase activity like constitutive SUC2 expression and was inhibited by unregulated cyclic AMP-dependent protein kinase activity like ADH2 expression in derepressed cells. To further elucidate the functional role of Reg1 in repressing ADH2 expression, deletions scanning the entire length of the protein were analyzed. Only the central region of the protein containing the putative PP1-binding sequence RHIHF was found to be indispensable for repression. Introduction of the I466M F468A substitutions into this sequence rendered Reg1 almost nonfunctional. Deletion of the central region or the double substitution prevented Reg1 from significantly interacting with Glc7 in two-hybrid analyses. Previous experimental evidence had indicated that Reg1 might target Glc7 to nuclear substrates such as the Snf1 kinase complex. Subcellular localization of a fully functional Reg1-green fluorescent protein fusion, however, indicated that Reg1 is cytoplasmic and excluded from the nucleus independently of the carbon source. When the level of Adr1 was modestly elevated, ADH2 expression was no longer fully repressed in glc7 mutant cells, providing the first direct evidence that Glc7 can repress ADH2 expression. These results suggest that the Reg1-Glc7 phosphatase is a cytoplasmic component of the machinery responsible for returning Snf1 kinase activity to its basal level and reestablishing glucose repression. This implies that the activated form of the Snf1 kinase complex must cycle between the nucleus and the cytoplasm.