Phosphoinositide-specific phospholipase C (PLC) is a central effector for many biological responses regulated by G-protein-coupled receptors including Drosophila phototransduction where light sensitive channels are activated downstream of NORPA, a PLCbeta homolog. Here we show that the sphingolipid biosynthetic enzyme, ceramide kinase, is a novel regulator of PLC signaling and photoreceptor homeostasis. A mutation in ceramide kinase specifically leads to proteolysis of NORPA, consequent loss of PLC activity, and failure in light signal transduction. The mutant photoreceptors also undergo activity-dependent degeneration. Furthermore, we show that a significant increase in ceramide, resulting from lack of ceramide kinase, perturbs the membrane microenvironment of phosphatidylinositol 4, 5, bisphosphate (PIP(2)), altering its distribution. Fluorescence image correlation spectroscopic studies on model membranes suggest that an increase in ceramide decreases clustering of PIP(2) and its partitioning into ordered membrane domains. Thus ceramide kinase-mediated maintenance of ceramide level is important for the local regulation of PIP(2) and PLC during phototransduction.