Phosphoinositides serve as address labels for recruiting peripheral cytoplasmic proteins to specific subcellular compartments, and as endogenous factors for modulating the activity of integral membrane proteins. Phosphatidylinositol 4,5-bisphosphate (PI(4,5)P(2)) is a plasma-membrane (PM)-specific phosphoinositide and a positive cofactor required for the activity of most PM channels and transporters. This requirement for phosphoinositide cofactors has been proposed to prevent PM channel/transporter activity during passage through the biosynthetic/secretory and endocytic pathways. To determine whether intracellularly localized channels are similarly "inactivated" at the PM, we studied PIP(2) modulation of intracellular TRPML1 channels. TRPML1 channels are primarily localized in lysosomes, but can also be detected temporarily in the PM upon lysosomal exocytosis. By directly patch-clamping isolated lysosomes, we previously found that lysosomal, but not PM-localized, TRPML1 is active with PI(3,5)P(2), a lysosome-specific PIP(2), as the underlying positive cofactor. Here we found that "silent" PM-localized TRPML1 could be activated by depleting PI(4,5)P(2) levels and/or by adding PI(3,5)P(2) to inside-out membrane patches. Unlike PM channels, surface-expressed TRPML1 underwent a unique and characteristic run-up upon patch excision, and was potently inhibited by a low micromolar concentration of PI(4,5)P(2). Conversely, depletion of PI(4,5)P(2) by either depolarization-induced activation or chemically induced translocation of 5'-phosphatase potentiated whole-cell TRPML1 currents. PI(3,5)P(2) activation and PI(4,5)P(2) inhibition of TRPML1 were mediated by distinct basic amino acid residues in a common PIP(2)-interacting domain. Thus, PI(4,5)P(2) may serve as a negative cofactor for intracellular channels such as TRPML1. Based on these results, we propose that phosphoinositide regulation sets compartment-specific activity codes for membrane channels and transporters.