Hydrolysis of phosphatidylinositol 4,5-bisphosphate (PIP2) by phosphatidylinositol-specific phospholipase C (PI-PLC) generates two second messengers, inositol 1,4,5-trisphosphate and 1,2-diacylglycerol. The polymerase chain reaction was used to isolate a Saccharomyces cerevisiae gene (PLC1) that encodes a protein of 869 amino acids (designated Plc1p) that bears greatest resemblance to the delta isoforms of mammalian PI-PLC in terms of overall sequence similarity and domain arrangement. Plc1p contains the conserved X and Y domains found in all higher eukaryotic PI-PLCs (51 and 29% identity, respectively, to the corresponding domains of rat delta 1 PI-PLC) and also contains a presumptive Ca(2+)-binding site (an E-F hand motif). Plc1p, modified by in-frame insertion of a His6 tract and a c-myc epitope near its amino terminus, was overexpressed from the GAL1 promoter, partially purified by nickel chelate affinity chromatography, and shown to be an active PLC enzyme in vitro with properties similar to those of its mammalian counterparts. Plc1p activity was strictly Ca2+ dependent: at a high Ca2+ concentration (0.1 mM), the enzyme hydrolyzed PIP2 at a faster rate than phosphatidylinositol, and at a low Ca2+ concentration (0.5 microM), it hydrolyzed PIP2 exclusively. Cells carrying either of two different deletion-insertion mutations (plc1 delta 1::HIS3 and plc1 delta 2::LEU2) were viable but displayed several distinctive phenotypes, including temperature-sensitive growth (inviable above 35 degrees C), osmotic sensitivity, and defects in the utilization of galactose, raffinose, and glycerol at permissive temperatures (23 to 30 degrees C). The findings reported here suggest that hydrolysis of PIP2 in S. cerevisiae is required for a number of nutritional and stress-related responses.