Retinal membrane guanylyl cyclase (RetGC) in the outer segments of vertebrate photoreceptors is controlled by guanylyl cyclase activating proteins (GCAPs), responding to light-dependent changes of the intracellular Ca(2+) concentrations. We present evidence that a different RetGC binding protein, retinal degeneration 3 protein (RD3), is a high-affinity allosteric modulator of the cyclase which inhibits RetGC activity at submicromolar concentrations. It suppresses the basal activity of RetGC in the absence of GCAPs in a noncompetitive manner, and it inhibits the GCAP-stimulated RetGC at low intracellular Ca(2+) levels. RD3 opposes the allosteric activation of the cyclase by GCAP but does not significantly change Ca(2+) sensitivity of the GCAP-dependent regulation. We have tested a number of mutations in RD3 implicated in human retinal degenerative disorders and have found that several mutations prevent the stable expression of RD3 in HEK293 cells and decrease the affinity of RD3 for RetGC1. The RD3 mutant lacking the carboxy-terminal half of the protein and associated with Leber congenital amaurosis type 12 (LCA12) is unable to suppress the activity of the RetGC1/GCAP complex. Furthermore, the inhibitory activity of the G57V mutant implicated in cone-rod degeneration is strongly reduced. Our results suggest that inhibition of RetGC by RD3 may be utilized by photoreceptors to block RetGC activity during its maturation and/or incorporation into the photoreceptor outer segment rather than participate in dynamic regulation of the cyclase by Ca(2+) and GCAPs.