Polarity is key to the function of eukaryotic cells. On the establishment of a polarity axis, cells can vectorially target secretion, generating an asymmetric distribution of plasma membrane proteins. From Saccharomyces cerevisiae to mammals, the small GTPase Cdc42 is a pivotal regulator of polarity. We used a fluorescent probe to visualize the distribution of phosphatidylserine in live S. cerevisiae. Remarkably, phosphatidylserine was polarized in the plasma membrane, accumulating in bud necks, the bud cortex and the tips of mating projections. Polarization required vectorial delivery of phosphatidylserine-containing secretory vesicles, and phosphatidylserine was largely excluded from endocytic vesicles, contributing to its polarized retention. Mutants lacking phosphatidylserine synthase had impaired polarization of the Cdc42 complex, leading to a delay in bud emergence, and defective mating. The addition of lysophosphatidylserine resulted in resynthesis and polarization of phosphatidylserine, as well as repolarization of Cdc42. The results indicate that phosphatidylserine--and presumably its polarization--are required for optimal Cdc42 targeting and activation during cell division and mating.