The fungus Cryptococcus neoformans is an opportunistic human pathogen that causes a life-threatening meningoencephalitis by expression of virulence factors such as melanin, a black pigment produced by the cell wall-associated enzyme laccase. In previous studies (Heung, L. J., Luberto, C., Plowden, A., Hannun, Y. A., and Del Poeta, M. (2004) J. Biol. Chem. 279, 21144-21153) we proposed that the sphingolipid enzyme inositol-phosphoryl ceramide synthase 1 (Ipc1) regulates melanin production through the generation of diacylglycerol (DAG), which was found to activate in vitro protein kinase C1 (Pkc1). Here, we investigated the molecular mechanisms by which DAG regulates Pkc1 in vivo and the effect of this regulation on laccase activity and melanin synthesis. To this end we deleted the putative DAG binding C1 domain of C. neoformans Pkc1 and found that the C1 deletion abolished the activation of Pkc1 by DAG. Deletion of the C1 domain repressed laccase activity and, consequently, melanin production. Finally, we show that these biological effects observed in the C1 deletion mutant are mediated by alteration of cell wall integrity and displacement of laccase from the cell wall. These studies define novel molecular mechanisms addressing Pkc1-laccase regulation by the sphingolipid pathway of C. neoformans, with important implications for understanding and targeting the Ipc1-Pkc1-laccase cascade as a regulator of virulence of this important human pathogen.