The SAC1 gene product has been implicated in the regulation of actin cytoskeleton, secretion from the Golgi, and microsomal ATP transport; yet its function is unknown. Within SAC1 is an evolutionarily conserved 300-amino acid region, designated a SAC1-like domain, that is also present at the amino termini of the inositol polyphosphate 5-phosphatases, mammalian synaptojanin, and certain yeast INP5 gene products. Here we report that SAC1-like domains have intrinsic enzymatic activity that defines a new class of polyphosphoinositide phosphatase (PPIPase). Purified recombinant SAC1-like domains convert yeast lipids phosphatidylinositol (PI) 3-phosphate, PI 4-phosphate, and PI 3,5-bisphosphate to PI, whereas PI 4,5-bisphosphate is not a substrate. Yeast lacking Sac1p exhibit 10-, 2.5-, and 2-fold increases in the cellular levels of PI 4-phosphate, PI 3,5-bisphosphate, and PI 3-phosphate, respectively. The 5-phosphatase domains of synaptojanin, Inp52p, and Inp53p are also catalytic, thus representing the first examples of an inositol signaling protein with two distinct lipid phosphatase active sites within a single polypeptide chain. Together, our data provide a long sought mechanism as to how defects in Sac1p overcome certain actin mutants and bypass the requirement for yeast phosphatidylinositol/phosphatidylcholine transfer protein, Sec14p. We demonstrate that PPIPase activity is a key regulator of membrane trafficking and actin cytoskeleton organization and suggest signaling roles for phosphoinositides other than PI 4,5-bisphosphate in these processes. Additionally, the tethering of PPIPase and 5-phosphatase activities indicate a novel mechanism by which concerted phosphoinositide hydrolysis participates in membrane trafficking.