The ability of muscarinic cholinergic receptors to activate phosphoinositide turnover following agonist-induced internalization has been investigated. Incubation of SH-SY5Y neuroblastoma cells with oxotremorine-M resulted in a time-dependent endocytosis of both muscarinic receptors and alpha subunits of G(q) and G(11), but not of isoforms of phosphoinositide-specific phospholipase C, into a subfraction of smooth endoplasmic reticulum (V-1). Agonist-induced increases in diacylglycerol mass and in P-32-phosphatidate labeling, much of which was of the tetraenoic species, were also observed in the V-1 fraction, but these increases persisted when the agonist-induced translocation of receptors into the V-1 fraction was blocked. All enzymes of the phosphoinositide cycle were detectable in the V-1 fraction. However, with the exception of phosphatidylinositol 4-kinase, none was enriched when compared with cell lysates. Both P-32-labeling studies and enzyme assays point to a very limited capacity of this fraction to synthesize phosphatidylinositol 4,5-bisphosphate, whereas the synthesis of phosphatidylinositol 4-phosphate is robust. These results indicate that endocytosed receptors do not appear to retain their ability to activate phosphoinositide turnover. The availability of the substrate for phospholipase C, phosphatidylinositol 4,5-bisphosphate, may be one factor that limits the activity of muscarinic receptors in this subcellular compartment.