We have used the DNA tumor virus polyoma as a model system to examine whether the phosphatidylinositol (PI) turnover pathway is a critical target for transforming gene products. Polyoma-infected cells show elevated levels of polyphosphoinositides and polyphosphoinositols, and a PI kinase activity is associated with middle T antigen, a transforming gene product of polyoma virus. In anti-T immunoprecipitates from polyoma-infected or -transformed cells, comparisons of wild-type and polyoma mutants defective for transformation show a strong correlation between middle T-associated PI kinase activity and transforming ability. Middle T has previously been found to associate at the plasma membrane with pp60 c-src and to activate it as a tyrosine kinase. c-src itself does not appear to phosphorylate PI; however, the middle T/pp60 c-src tyrosine kinase activity may be important for activation of PI kinase. Ammonium orthovanadate, a tyrosine phosphatase inhibitor, elevates the middle T/pp60 c-src-associated PI kinase activity. We propose that middle T/pp60 c-src activates a PI kinase and modulates PI turnover in vivo by tyrosine phosphorylation.