Phosphatidylinositol bisphosphate (PIP2) regulates the activities of many membrane proteins, including ion channels, through direct interactions. However, the affinity of PIP2 is so high for some channel proteins that its physiological role as a modulator has been questioned. Here we show that PIP2 is a key cofactor for activation of small conductance Ca2+-activated potassium channels (SKs) by Ca(2+)-bound calmodulin (CaM). Removal of the endogenous PIP2 inhibits SKs. The PIP2-binding site resides at the interface of CaM and the SK C terminus. We further demonstrate that the affinity of PIP2 for its target proteins can be regulated by cellular signaling. Phosphorylation of CaM T79, located adjacent to the PIP2-binding site, by casein kinase 2 reduces the affinity of PIP2 for the CaM-SK channel complex by altering the dynamic interactions among amino acid residues surrounding the PIP2-binding site. This effect of CaM phosphorylation promotes greater channel inhibition by G protein-mediated hydrolysis of PIP2.