The type 4 cAMP-specific phosphodiesterases (PDE4s) are Mg(2+)-dependent hydrolases that catalyze the hydrolysis of 3', 5'-cAMP to AMP. Previous studies indicate that PDE4 exists in two conformations that bind the inhibitor rolipram with affinities differing by more than 100-fold. Here we report that these two conformations are the consequence of PDE4 binding to its metal cofactor such as Mg(2+). Using a fluorescence resonance energy transfer (FRET)-based equilibrium binding assay, we identified that L-791,760, a fluorescent inhibitor, binds to the apoenzyme (free enzyme) and the holoenzyme (enzyme bound to Mg(2+)) with comparable affinities (K(d) approximately 30 nM). By measuring the displacement of the bound L-791,760, we have also identified that other inhibitors bind differentially with the apoenzyme and the holoenzyme depending upon their structure. CDP-840, SB-207499, and RP-73401 bind preferentially to the holoenzyme. The conformational-sensitive inhibitor (R)-rolipram binds to the holoenzyme and apoenzyme with affinities (K(d)) of 5 and 300 nM, respectively. In contrast to its high affinity (K(d) approximately 2 microM) and active holoenzyme complex, cAMP binds to the apoenzyme nonproductively with a reduced affinity (K(d) approximately 170 microM). These results demonstrate that cofactor binding to PDE4 is responsible for eliciting its high-affinity interaction with cAMP and the activation of catalysis.