The pleckstrin homology (PH) domain is a newly recognized protein module believed to play an important role in signal transduction. While the tertiary structures of several PH domains have been determined, some co-complexed with ligands, the function of this domain remains elusive. In this report, the PH domain located in the N terminus of human phospholipase C-delta1 (PLCdelta1) was found to regulate enzyme activity. The hydrolysis of phosphatidylinositol (PI) was stimulated by phosphatidylinositol 4,5-bisphosphate (PIP2) in a dose-dependent manner with an EC50 = 1 microM (0.3 mol%), up to 9-fold higher when 5 microM (1.5 mol%) of PIP2 was incorporated into the PI/phosphatidylserine (PS)/phosphatidylcholine (PC) vesicles (30 microM of PI with a molar ratio of PI:PS:PC = 1:5:5). Stimulation was specific for PIP2, since other anionic phospholipids including phosphatidylinositol 4-phosphate had no stimulatory effect. PIP2-mediated stimulation was, however, inhibited by inositol 1,4, 5-triphosphate (IP3) in a dose-dependent manner, suggesting a modulatory role for this inositol. When a nested set of PH domain deletions up to 70 amino acids from the N terminus of PLCdelta1 were constructed, the deletion mutant enzymes all catalyzed the hydrolysis of the micelle forms of PI and PIP2 with specific activities comparable with those of the wild type enzyme. However, the stimulatory effect of PIP2 was greatly diminished when more than 20 amino acid residues were deleted from the N terminus. To identify the specific residues involved in PIP2-mediated enzyme activation, amino acids with functional side chains between residues 20 and 40 were individually changed to glycine. While all these mutations had little effect on the ability of the enzyme to catalyze the hydrolysis of PI or PIP2 micelles, the catalytic activity of mutants K24G, K30G, K32G, R38G, or W36G was markedly unresponsive to PIP2. Analysis of PIP2-stimulated PI hydrolysis by a dual substrate binding model of catalysis revealed that the micellar dissociation constant (Ks) of PLCdelta1 for the PI/PS/PC vesicles was reduced from 558 microM to 53 microM, and the interfacial Michaelis constant (Km) was reduced from 0.21 to 0.06 by PIP2. The maximum rate of PI hydrolysis (Vmax) was not affected by PIP2. These results demonstrate that a major function of the PH domain of PLCdelta1 is to modulate enzyme activity. Further, our results identify PIP2 as a functional ligand for a PH domain and suggest a general mechanism for the regulation of other proteins by PIP2.