The hydrolytic activity and interaction of acidic and neutral phospholipase A2 (PLA2) with large unilamellar liposomes treated with cobra venom cytotoxin Vc5 (CT Vc5) were studied to more fully understand the modulating effects of cationic membrane-active peptides on PLA2. Studies were done by fluorescence displacement, EPR spin probes, and 31P-NMR. The results showed that CT Vc5 inhibits PLA2 activity on phosphatidylcholine liposomes. Enzymatic activity of both acidic and neutral PLA2's were enhanced on liposomes containing cardiolipin and pretreated with cytotoxin. The cytotoxin, however, inhibited enzyme lipid hydrolysis if these same liposomes were first treated with acidic PLA2. The highest enzymatic activity was found on substrates with nonbilayer lipid packing. Using EPR of spin labeled enzymes, it was shown that CT Vc5 inhibited binding of acidic PLA2 to liposomes and caused displacement of acidic PLA2 from liposomes. No direct interaction was found between CT Vc5 and neutral PLA2.. It is suggested that cytotoxin perturbs packing of lipid molecules in liposomes containing cardiolipin and is responsible for increased catalysis, whereas direct interaction between CT Vc5 and acidic PLA2, inhibits enzyme activity. It is concluded that variability in substrate composition and the chemical nature of both PLA2 and cationic peptide determine whether enzyme activity is affected by substrate packing or by direct enzyme-peptide interaction. Models of interactions of PLA2 with CT Vc5 and phospholipid membranes are presented.