Hyperpolarization-activated cyclic nucleotide-gated (HCN) channels generate a pacemaking current, I(h), which regulates neuronal excitability and oscillatory activity in the brain. Although all four HCN isoforms are expressed in the brain, the functional contribution of HCN3 is unknown. Using immunohistochemistry, confocal microscopy, and whole-cell patch-clamp recording techniques, we investigated HCN3 function in thalamic intergeniculate leaflet (IGL) neurons, as HCN3 is reportedly preferentially expressed in these cells. We observed that I(h) recorded from IGL, but not ventral geniculate nucleus, neurons in HCN2(+/+) mice and rats activated slowly and were cAMP insensitive, which are hallmarks of HCN3 channels. We also observed strong immunolabeling for HCN3, with no labeling for HCN1 and HCN4, and only very weak labeling for HCN2. Deletion of HCN2 did not alter I(h) characteristics in mouse IGL neurons. These data together indicate that the HCN3 channel isoform generated I(h) in IGL neurons. Intracellular phosphatidylinositol-4,5-bisphosphate (PIP(2)) shifted I(h) activation to more depolarized potentials and accelerated activation kinetics. Upregulation of HCN3 function by PIP(2) augmented low-threshold burst firing and spontaneous oscillations; conversely, depletion of PIP(2) or pharmacologic block of I(h) resulted in a profound inhibition of excitability. The results indicate that functional expression of HCN3 channels in IGL neurons is crucial for intrinsic excitability and rhythmic burst firing, and PIP(2) serves as a powerful modulator of I(h)-dependent properties via an effect on HCN3 channel gating. Since the IGL is a major input to the suprachiasmatic nucleus, regulation of pacemaking function by PIP(2) in the IGL may influence sleep and circadian rhythms.