The lipid activators of protein kinase C, phosphatidylserine and diacylglycerol, induce a reversible conformational change that exposes the auto-inhibitory pseudosubstrate domain of the enzyme. The pseudosubstrate domain of beta-II protein kinase C is cleaved after the first residue, arginine 19, by the endoproteinase Arg-C only when the kinase is bound to the activating lipid phosphatidylserine. Exposure of this residue is markedly enhanced by diacylglycerol. In contrast, the pseudosubstrate domain is not cleaved in the absence of lipids, when protein kinase C is bound to non-activating acidic lipids, when the kinase has autophosphorylated on the amino terminus, or after dilution of the activating lipids. This work reveals specificity in the interaction of protein kinase C with phosphatidylserine since only this phospholipid causes the specific conformational change detected in the regulatory domain of the enzyme, and demonstrates that allosteric regulators expose the intramolecular auto-inhibitory domain of a kinase.