Our previous studies on the p85/p110alpha phosphatidylinositol 3-kinase showed that the p85 regulatory subunit inhibits the p110alpha catalytic subunit, and that phosphopeptide activation of p85/p110alpha dimers reflects a disinhibition of p110alpha (Yu, J., Zhang, Y., McIlroy, J., Rordorf-Nikolic, T., Orr, G. A., and Backer, J. M. (1998) Mol. Cell. Biol. 18, 1379-1387). We now define the domains of p85 required for inhibition of p110alpha. The iSH2 domain of p85 is sufficient to bind p110alpha but does not inhibit it. Inhibition of p110alpha requires the presence of the nSH2 domain linked to the iSH2 domain. Phosphopeptides increase the activity of nSH2/iSH2-p110alpha dimers, demonstrating that the nSH2 domain mediates both inhibition of p110alpha and disinhibition by phosphopeptides. In contrast, phosphopeptides did not increase the activity of iSH2/cSH2-p110alpha dimers, or dimers composed of p110alpha and an nSH2/iSH2/cSH2 construct containing a mutant nSH2 domain. Phosphopeptide binding to the cSH2 domain increased p110alpha activity only in the context of an intact p85 containing both the nSH2 domain and residues 1-322 (the SH3, proline-rich and breakpoint cluster region-homolgy domains). These data suggest that the nSH2 domain of p85 is a direct regulator of p110alpha activity. Regulation of p110alpha by phosphopeptide binding to the cSH2 domain occurs by a mechanism that requires the additional presence of the nSH2 domain and residues 1-322 of p85.