Transient receptor potential (TRP) channel, melastatin subfamily (TRPM)4 is a Ca2+-activated monovalent cation channel that depolarizes the plasma membrane and thereby modulates Ca2+ influx through Ca2+-permeable pathways. A typical feature of TRPM4 is its rapid desensitization to intracellular Ca2+ ([Ca2+]i). Here we show that phosphatidylinositol 4,5-biphosphate (PIP2) counteracts desensitization to [Ca2+]i in inside-out patches and rundown of TRPM4 currents in whole-cell patch-clamp experiments. PIP2 shifted the voltage dependence of TRPM4 activation towards negative potentials and increased the channel's Ca2+ sensitivity 100-fold. Conversely, activation of the phospholipase C (PLC)-coupled M1 muscarinic receptor or pharmacological depletion of cellular PIP2 potently inhibited currents through TRPM4. Neutralization of basic residues in a C-terminal pleckstrin homology (PH) domain accelerated TRPM4 current desensitization and strongly attenuated the effect of PIP2, whereas mutations to the C-terminal TRP box and TRP domain had no effect on the PIP2 sensitivity. Our data demonstrate that PIP2 is a strong positive modulator of TRPM4, and implicate the C-terminal PH domain in PIP2 action. PLC-mediated PIP2 breakdown may constitute a physiologically important brake on TRPM4 activity.