Calcium/phosphatidylserine-dependent protein kinase C (PKC) is activated by phosphatidylinositol 4,5-bisphosphate (PIP2), as well as by diacylglycerol (DG) and phorbol esters. Here we report that PIP2, like DG, increases the affinity of PKC for Ca2+, and causes Ca2+-dependent translocation of the enzyme from the soluble to a particulate fraction (liposomes). Phosphatidylinositol 4-phosphate (PIP) also displaces phorbol ester from PKC and causes Ca2+-dependent translocation of the enzyme to liposomes, but is much less efficient than PIP2, and a much weaker activator, with a histone phosphorylation v(PIP) v(PIP2) of ∼0.15. Scatchard analysis indicates competitive inhibition between PIP and phorbol ester with Ki(PIP) = 0.26 mol% as compared with Ki(PIP2) = 0.043 mol%. No effect of phosphatidylinositol (PI) on phorbol ester binding to PKC, translocation of PKC, or activation of PKC was observed. These results suggest that both PIP and PIP2 can complex with PKC, but full activation of the enzyme takes place only when PIP is converted to PIP2. We suggest that an inositide interconversion shuttle has a role in the regulation of protein phosphorylation. © 1991.