We have further tested the hypothesis that receptor-mediated modulation of KCNQ channels involves depletion of phosphatidylinositol 4,5-bisphosphate (PIP2) by phosphoinositide-specific phospholipase C (PLC). We used four parallel assays to characterize the agonist-induced PLC response of cells (tsA or CHO cells) expressing M1 muscarinic receptors: translocation of two fluorescent probes for membrane lipids, release of calcium from intracellular stores, and chemical measurement of acidic lipids. Occupation of M1 receptors activates PLC and consumes cellular PIP2 in less than a minute and also partially depletes mono- and unphosphorylated phosphoinositides. KCNQ current is simultaneously suppressed. Two inhibitors of PLC, U73122 and edelfosine (ET-18-OCH3), can block the muscarinic actions completely, including suppression of KCNQ current. However, U73122 also had many side effects that were attributable to alkylation of various proteins. These were mimicked or occluded by prior reaction with the alkylating agent N-ethylmaleimide and included block of pertussis toxin-sensitive G proteins and effects that resembled a weak activation of PLC or an inhibition of lipid kinases. By our functional criteria, the putative PLC activator m-3M3FBS did stimulate PLC, but with a delay and an irregular time course. It also suppressed KCNQ current. The M1 receptor-mediated activation of PLC and suppression of KCNQ current were stopped by lowering intracellular calcium well below resting levels and were slowed by not allowing intracellular calcium to rise in response to PLC activation. Thus calcium release induced by PLC activation feeds back immediately on PLC, accelerating it during muscarinic stimulation in strong positive feedback. These experiments clarify important properties of receptor-coupled PLC responses and their inhibition in the context of the living cell. In each test, the suppression of KCNQ current closely paralleled the expected fall of PIP2. The results are described by a kinetic model.