Membrane cholesterol modulates the ability of glucose to stimulate insulin secretion from pancreatic beta-cells. The molecular mechanism by which this occurs is not understood. Here, we show that in cultured beta-cells, cholesterol acts through phosphatidylinositol 4,5-bisphosphate (PIP(2)) to regulate actin dynamics, plasma membrane potential, and glucose-stimulated insulin secretion. Cholesterol-overloaded beta-cells exhibited decreased PIP(2) hydrolysis, with diminished glucose-induced actin reorganization, membrane depolarization, and insulin secretion. The converse findings were observed in cholesterol-depleted cells. These results support a model in which cholesterol depletion is coupled through PIP(2) to enhance both plasma membrane Ca2+ influx from the extracellular space, as well as inositol 1,4,5-triphosphate-stimulated Ca2+ efflux from intracellular stores. The inability to increase cytosolic Ca2+ may be the main underlying factor to account for impaired glucose-stimulated insulin secretion in cholesterol-overloaded beta-cells.