The effect of polyoma middle-sized tumor antigen (MTAg) on phosphatidylinositol metabolism has been characterized in vivo and in vitro using polyoma-transformed and polyoma-infected cells. Cells infected with transformation-competent polyoma virus exhibit increased levels of inositol phospholipids and the second messenger inositol trisphosphate. MTAg or pp60c-src immunoprecipitates from MTAg-transformed cells contain an activity that phosphorylates phosphatidylinositol and phosphatidylinositol 4-phosphate. This activity is induced in parallel with MTAg when the MTAg synthesis is regulated by hormonal or heavy metal inducers. Immunoprecipitates from one class of polyoma mutants defective in transformation have a reduced level of associated phosphatidylinositol kinase activity in vitro yet are capable of tyrosine phosphorylation on exogenous protein substrates at rates comparable to wild-type virus. Thus, for these mutants, phosphatidylinositol kinase activity is more tightly correlated with transformation than is protein kinase activity. These results suggest that alterations in phosphatidylinositol metabolism by MTAg play a role in transformation by polyoma virus.