The transient receptor potential type V5 channel (TRPV5) is a Ca2+-selective TRP channel important for epithelial Ca2+ transport. Intracellular Mg2+ causes a fast voltage-dependent block of the TRPV5 channel by binding to the selectivity filter. Here, we report that intracellular Mg2+ binding to the selectivity filter of TRPV5 also causes a slower reversible conformational change leading to channel closure. We further report that PIP2 activates TRPV5. Activation of TRPV5 by PIP2 is independent of Mg2+. Yet, PIP2 decreases sensitivity of the channel to the Mg2+-induced slow inhibition. Mutation of aspartate-542, a critical Mg2+-binding site in the selectivity filter, abolishes Mg2+-induced slow inhibition. PIP2 has no effects on Mg2+-induced voltage-dependent block. Thus, PIP2 prevents the Mg2+-induced conformational change without affecting Mg2+ binding to the selectivity filter. Hydrolysis of PIP2 via receptor activation of phospholipase C sensitizes TRPV5 to the Mg2+-induced slow inhibition. These results provide a novel mechanism for regulation of TRP channels by phospholipase C-activating hormones via alteration of the sensitivity to intracellular Mg2+.