The building blocks of most signal transduction pathways are pairs of enzymes, such as kinases and phosphatases, that control the activity of protein targets by covalent modification. It has previously been shown [Goldbeter A & Koshland DE (1981) Proc Natl Acad Sci USA78, 6840-6844] that these systems can be highly sensitive to changes in stimuli if their catalysing enzymes are saturated with their target protein substrates. This mechanism, termed zero-order ultrasensitivity, may set thresholds that filter out subthreshold stimuli. Experimental data on protein abundance suggest that the enzymes and their target proteins are present in comparable concentrations. Under these conditions a large fraction of the target protein may be sequestrated by the enzymes. This causes a reduction in ultrasensitivity so that the proposed mechanism is unlikely to account for ultrasensitivity under the conditions present in most in vivo signalling cascades. Furthermore, we show that sequestration changes the dynamics of a covalent modification cycle and may account for signal termination and a sign-sensitive delay. Finally, we analyse the effect of sequestration on the dynamics of a complex signal transduction cascade: the mitogen-activated protein kinase (MAPK) cascade with negative feedback. We show that sequestration limits ultrasensitivity in this cascade and may thereby abolish the potential for oscillations induced by negative feedback. © 2006 The Authors.