Mgm1, the yeast ortholog of mammalian OPA1, is a key component in mitochondrial membrane fusion and is required for maintaining mitochondrial dynamics and morphology. We showed recently that the purified short isoform of Mgm1 (s-Mgm1) possesses GTPase activity, self-assembles into low order oligomers, and interacts specifically with negatively charged phospholipids (Meglei, G., and McQuibban, G. A. (2009) Biochemistry 48, 1774-1784). Here, we demonstrate that s-Mgm1 binds to a mixture of phospholipids characteristic of the mitochondrial inner membrane. Binding to physiologically representative lipids results in approximately 50-fold stimulation of s-Mgm1 GTPase activity. s-Mgm1 point mutants that are defective in oligomerization and lipid binding do not exhibit such stimulation and do not function in vivo. Electron microscopy and lipid turbidity assays demonstrate that s-Mgm1 promotes liposome interaction. Furthermore, s-Mgm1 assembles onto liposomes as oligomeric rings with 3-fold symmetry. The projection map of negatively stained s-Mgm1 shows six monomers, consistent with two stacked trimers. Taken together, our data identify a lipid-binding domain in Mgm1, and the structural analysis suggests a model of how Mgm1 promotes the fusion of opposing mitochondrial inner membranes.