Phosphoinositides serve as address labels for recruiting peripheral cytoplasmic proteins to specific subcellular compartments, and as endogenous factors for modulating the activity of integral membrane proteins. Phosphatidylinositol 4,5-bisphosphate (PI(4,5)P 2 ) is a plasma-membrane (PM)–specific phosphoinositide and a positive cofactor required for the activity of most PM channels and transporters. This requirement for phosphoinositide cofactors has been proposed to prevent PM channel/transporter activity during passage through the biosynthetic/secretory and endocytic pathways. To determine whether intracellularly localized channels are similarly “inactivated” at the PM, we studied PIP 2 modulation of intracellular TRPML1 channels. TRPML1 channels are primarily localized in lysosomes, but can also be detected temporarily in the PM upon lysosomal exocytosis. By directly patch-clamping isolated lysosomes, we previously found that lysosomal, but not PM-localized, TRPML1 is active with PI(3,5)P 2 , a lysosome-specific PIP 2 , as the underlying positive cofactor. Here we found that “silent” PM-localized TRPML1 could be activated by depleting PI(4,5)P 2 levels and/or by adding PI(3,5)P 2 to inside-out membrane patches. Unlike PM channels, surface-expressed TRPML1 underwent a unique and characteristic run-up upon patch excision, and was potently inhibited by a low micromolar concentration of PI(4,5)P 2 . Conversely, depletion of PI(4,5)P 2 by either depolarization-induced activation or chemically induced translocation of 5′-phosphatase potentiated whole-cell TRPML1 currents. PI(3,5)P 2 activation and PI(4,5)P 2 inhibition of TRPML1 were mediated by distinct basic amino acid residues in a common PIP 2 -interacting domain. Thus, PI(4,5)P 2 may serve as a negative cofactor for intracellular channels such as TRPML1. Based on these results, we propose that phosphoinositide regulation sets compartment-specific activity codes for membrane channels and transporters.