Casein kinase I epsilon (CKI epsilon) is a member of the CKI gene family, members of which are involved in the control of SV40 DNA replication, DNA repair, and cell metabolism. The mechanisms that regulate CKI epsilon activity and substrate specificity are not well understood. We report that CKI epsilon, which contains a highly phosphorylated 123-amino acid carboxyl-terminal extension not present in CKI alpha, is substantially less active than CKI alpha in phosphorylating a number of substrates including SV40 large T antigen and is unable to inhibit the initiation of SV40 DNA replication. Two mechanisms for the activation of CKI epsilon have been identified. First, limited tryptic digestion of CKI epsilon produces a protease-resistant amino-terminal 39-kDa core kinase with several-fold enhanced activity. Second, phosphatase treatment of CKI epsilon activates CKI epsilon 5-20-fold toward T antigen. Similar treatment of a truncated form of CKI epsilon produced only a 2-fold activation. Notably, this activation was transient; reautophosphorylation led to a rapid down-regulation of the kinase within 5 min. Phosphatase treatment also activated CKI epsilon toward the novel substrates I kappa B alpha and Ets-1. These mechanisms may serve to regulate CKI epsilon and related forms of CKI in the cell, perhaps in response to DNA damage.