The cellular location at which exogenous phosphatidic acid is hydrolysed in cultured neonatal rat islets was examined. Phosphatidate phosphohydrolase activity could be demonstrated in both whole cell sonicates and isolated plasma membranes. In the whole cell fraction phosphatidic acid hydrolysis to diacylglycerol was stimulated 43% by the presence of Mg2+. The activity present in isolated membranes was totally dependent on the presence of Mg2+ and was increased in plasma membranes from glucose-stimulated islets. Following exposure of islets to low glucose concentrations, raising the Ca2+ concentration from 150 nM to 40 microM in the presence of Mg2+ did not affect the formation of diacylglycerol in whole cell fractions or plasma membranes. These results indicate the presence within the islet of membrane-bound phosphatidate phosphohydrolase activity and demonstrate its activation by glucose.