The major glycerophospholipid phosphatidylethanolamine (PE) in the nervous system is essential for neural development and function. There are two major PE synthesis pathways, the CDP-ethanolamine pathway in the endoplasmic reticulum (ER) and the phosphatidylserine decarboxylase (PSD) pathway in mitochondria. However, the role played by mitochondrial PE synthesis in maintaining cellular PE homeostasis is unknown. Here, we show that Drosophila pect (phosphoethanolamine cytidylyltransferase) mutants lacking the CDP-ethanolamine pathway, exhibited alterations in phospholipid composition, defective phototransduction, and retinal degeneration. Induction of the PSD pathway fully restored levels and composition of cellular PE, thus rescued the retinal degeneration and defective visual responses in pect mutants. Disrupting lipid exchange between mitochondria and ER blocked the ability of PSD to rescue pect mutant phenotypes. These findings provide direct evidence that the synthesis of PE in mitochondria contributes to cellular PE homeostasis, and suggest the induction of mitochondrial PE synthesis as a promising therapeutic approach for disorders associated with PE deficiency.