Inositol monophosphatase is a key enzyme in the de novo biosynthesis of inositol and in the phosphoinositide second-messenger signalling pathway. Inhibition of this enzyme is a proposed mechanism for lithium's pharmacological action in bipolar illness (manic depression). Very little is known about how expression of this enzyme is regulated. Because the yeast Saccharomyces cerevisiae has been shown to be an excellent model system in which to understand the regulation of inositol metabolism, we characterized inositol monophosphatase in this yeast. Lithium inhibited monophosphatase activity in vitro. Growth in the presence of inositol resulted in increased expression of the enzyme in vivo, although inositol had no effect on enzyme activity in vitro. The inositol effect was apparent when cells were grown in glucose but not in glycerol/ethanol. Monophosphatase activity was derepressed as cells entered stationary phase. This effect was apparent only during growth in glucose plus inositol. The results demonstrate that S. cerevisiae monophosphatase is inhibited by lithium and regulated by factors affecting phospholipid biosynthesis.