Yeast ISC1 (Yer019w) encodes inositolphosphosphingolipid-phospholipase C and is activated by phosphatidylserine (PS) and cardiolipin (CL) (Sawai, H., Okamoto, Y., Lubert, C., Mao, C., Bielawska, A., Domae, M., and Hannun, Y. A. (2000) J. Biol. Chem. 275, 39793-39798). In this study, the structural requirements for anionic phospholipid-selective binding of ISC1 were determined using site-directed and deletion mutants. FLAG-tagged Isc1p was activated by PS, CL, and phosphatidylglycerol (PG) in a dose-dependent manner. Using lipid-protein overlay assays, Isc1p interacted specifically and directly with PS/CI/PG. Lipid-protein binding studies of a series of deletion mutants demonstrated that the second transmembrane domain (TMII) and the C terminus were required for PS binding. Moreover, the TMII and the C terminus domain were sufficient to impart PS binding to a heterologous protein, green fluorescence protein. In addition, mutations of positively charged amino acid residues at the C terminus of ISC1 reduced the activating effects of PS, suggesting involvement of these amino acids in interaction with PS/CI/PG and in the activation of the enzyme. Finally, when separate fragments containing the N terminus-TMI and TMII-C terminus were expressed heterologously, enzyme activity was reconstituted, demonstrating that the interaction of the N terminus and the C terminus is required for activity of Isc1p. These results raise the hypothesis that in the presence of PS/CL/PG, the catalytic domain in the N terminus of Isc1p is "pulled" to the membrane to interact with substrate. These studies provide unique insights into the properties of ISC1 and define a novel mechanism for activation of enzymes by lipids cofactors.