Listeria monocytogenes is a bacterium responsible for localized and generalized infections in humans and animals. It has the ability to spread from the cytoplasm of an infected cell to neighboring cells without becoming exposed to the extracellular space. The bacterium secretes a phospholipase C (PLC(LM)) that is active on glycerophospholipids, e.g., phosphatidylcholine, and on sphingomyelin; thus, PLC(LM) should be described more appropriately as a phospholipase C/sphingomyelinase. We have obtained PLC(LM) free from a frequent contaminant, listeriolysin O, using an improved purification procedure. PLC(LM) has been assayed on large unilamellar liposomes of defined lipid composition. The enzyme is activated by K(+) and Mg(2+), and readily degrades phospholipids in bilayer form, in the absence of detergents. Enzyme activity is accompanied by important changes in the structure of the phospholipid vesicles, namely, vesicle aggregation, intervesicular mixing of lipids, and mixing of aqueous contents, with very low leakage of vesicular contents. The data are interpreted as indicative of PLC(LM)-induced vesicle fusion. This is confirmed by the demonstration of intervesicular mixing of inner monolayer lipids, using a novel procedure. The observation of PLC(LM)-induced membrane fusion suggests a mechanism for the cell-to-cell propagation of the bacterium, which requires disruption of a double-membrane vacuole.