The relationship between ADP-ribosylation factor (Arf) 1 and phosphoinositides, which have been independently implicated as regulators of membrane traffic, was examined. Because both Arf-dependent phospholipase D and Arf1 GTPase-activating protein (GAP) require phosphatidylinositol 4,5-bisphosphate (PIP2), Arf1 complexed with PIP2 has been proposed to interact with target proteins. This hypothesis was tested using Arf1 GAP as a model system. Arf1 was shown to bind to PIP2 in Triton X-100 micelles with a Kd of 45 +/- 13 microM. Arf1 also bound phosphatidic acid but with 10-fold lower affinity. PIP2 binding was specifically disrupted by mutating lysines 15, 16, and 181 and arginine 178 to leucines. Decreased PIP2 binding resulted in an increased EC50 of PIP2 for activation of Arf GAP. None of the mutations that decreased PIP2 binding affected binding to or activation of GAP by phosphatidic acid, which acts at a functionally distinct site. These data support the hypothesis that PIP2 binding to Arf1 promotes interaction with Arf GAP. The implications of lipid-directed protein-protein interactions for membrane traffic are discussed.