The myristoylated alanine-rich protein kinase C substrate (MARCKS) is a major protein kinase C (PKC) substrate in many different cell types. MARCKS is bound to the plasma membrane, and several recent studies suggest that this binding requires both hydrophobic insertion of its myristate chain into the bilayer and electrostatic interaction of its cluster of basic residues with acidic lipids. Phosphorylation of MARCKS by PKC introduces negative charges into the basic cluster, reducing its electrostatic interaction with acidic lipids and producing translocation of MARCKS from membrane to cytoplasm. The present study shows that physiological concentrations of MARCKS (<10 microM) inhibit phospholipase C (PLC)-catalyzed hydrolysis of phosphatidylinositol 4,5-bisphosphate (PIP2) in phospholipid vesicles. A peptide corresponding to the basic cluster, MARCKS(151-175), produces a similar inhibition, which was observed with both PLC-delta1 and -beta1. Direct fluorescence microscopy observations demonstrate that the MARCKS peptide forms lateral domains enriched in the acidic lipids phosphatidylserine and PIP2 but not PLC, which accounts for the observed inhibition of PIP2 hydrolysis. Phosphorylation of MARCKS(151-175) by PKC releases the inhibition and allows PLC to produce a burst of inositol 1,4, 5-trisphosphate and diacylglycerol.