Sphingolipids have emerged as novel bioactive mediators in eukaryotic cells including yeast. It has been proposed that sphingomyelin (SM) hydrolysis and the concomitant generation of ceramide are involved in various stress responses in mammalian cells. The yeast Saccharomyces cerevisiae has inositol phosphosphingolipids (IPS) instead of SM and glycolipids, and synthesis of IPS is indispensable to its growth. Although the genes responsible for the synthesis of IPS have been identified, the gene(s) for the degradation of IPS has not been reported. Here we show that ISC1 (YER019w), which has homology to bacterial neutral sphingomyelinase (SMase), encodes IPS phospholipase C (IPS-PLC). First, we observed that overexpression of ISC1 greatly increased neutral SMase activity, and this activity was dependent on the presence of phosphatidylserine. Cells deleted in ISC1 demonstrated negligible neutral SMase activity. Because yeast cells have IPS instead of SM, we investigated whether IPS are the physiologic substrates of this enzyme. Lysates of ISC1-overexpressing cells demonstrated very high PLC activities on IPS. Deletion of ISC1 eliminated endogenous IPS-PLC activities. Labeling yeast cells with [(3)H]dihydrosphingosine showed that IPS were increased in the deletion mutant cells. This study identifies the first enzyme involved in catabolism of complex sphingolipids in S. cerevisiae.