Integrin-linked kinase (ILK) has been implicated in Ca(2+)- independent contraction of smooth muscle via its ability to phosphorylate myosin. We investigated the possibility that this kinase might also phosphorylate and regulate the myosin light-chain phosphatase inhibitor proteins CPI-17 [protein kinase C (PKC)-dependent phosphatase inhibitor of 17 kDa] and PHI-1 (phosphatase holoenzyme inhibitor-1), known substrates of PKC. Both phosphatase inhibitors were phosphorylated by ILK in an in-gel kinase assay and in solution. A Thr-->Ala mutation at Thr(38) of CPI-17 and Thr(57) of PHI-1 eliminated phosphorylation by ILK. Phosphopeptide mapping, phospho amino acid analysis and immunoblotting using phospho-specific antibodies indicated that ILK predominantly phosphorylated the site critical for potent inhibition, i.e. Thr(38) of CPI-17 or Thr(57) of PHI-1. CPI-17 and PHI-1 thiophosphorylated by ILK at Thr(38) or Thr(57) respectively inhibited myosin light-chain phosphatase (MLCP) activity bound to myosin, whereas the site-specific mutants CPI-17-Thr(38)Ala and PHI-1-Thr(57)Ala, treated with ILK under identical conditions, like the untreated wild-type proteins had no effect on the phosphatase. Consistent with these effects, both thiophospho-CPI-17 and -PHI-1 induced Ca(2+) sensitization of contraction of Triton X-100-demembranated rat-tail arterial smooth muscle, whereas CPI-17-Thr(38)Ala and PHI-1-Thr(57)Ala treated with ILK in the presence of adenosine 5'-[gamma-thio]triphosphate failed to evoke a contractile response. We conclude that ILK may activate smooth-muscle contraction both directly, via phosphorylation of myosin, and indirectly, via phosphorylation and activation of CPI-17 and PHI-1, leading to inhibition of MLCP.