Annexin I (lipocortin I) binds to secretory granule membranes and promotes their aggregation in a Ca(2+)-dependent manner [Creutz, C. E., et al. (1987) J. Biol. Chem. 262, 1860-1868; Drust, D. S., & Creutz, C. E. (1988) Nature 331, 88-91]. It is also phosphorylated on serine residues when bovine chromaffin cells are stimulated to secrete [Michener, M. L., et al. (1986) J. Biol. Chem. 261, 6548-6555], suggesting phosphorylation may be involved in modulating the function of annexin I. We report here that phosphorylation of the N-terminal tail by protein kinase C strongly inhibits the ability of annexin I to aggregate chromaffin granules by increasing the calcium requirement 4-fold. This inhibition was readily reversed when the protein was dephosphorylated by protein phosphatase 2A. The inhibition was not due to inability of phosphorylated annexin I to bind to chromaffin granules, since the phosphorylated form bound to the granule membrane at slightly lower levels of calcium than the native form. The phosphorylated annexin I also bound to 20% phosphatidylserine/80% phosphatidylcholine vesicles at lower Ca2+ levels than the native form. The inhibitory effect of phosphorylation on the granule aggregating activity of annexin I was found to be amplified by an unusual mechanism: The phosphorylated form inhibited the activity of the unphosphorylated form. The possible importance of the regulation of annexin I activity by phosphorylation in exocytosis is discussed.