Generation of a phosphatidylinositol 3,4,5-trisphosphate [PI(3,4,5)P-3] gradient within the plasma membrane is important for cell polarization and chemotaxis in many eukaryotic cells. The gradient is produced by the combined activity of phosphatidylinositol 3-kinase (PI3K) to increase PI(3,4,5)P-3 on the membrane nearest the polarizing signal and PI(3,4,5)P-3 dephosphorylation by phosphatase and tensin homolog deleted on chromosome ten (PTEN) elsewhere. Common to both of these enzymes is the lipid phosphatidylinositol 4,5-bisphosphate [PI(4,5)P-2], which is not only the substrate of PI3K and product of PTEN but also important for membrane binding of PTEN. Consequently, regulation of phospholipase C (PLC) activity, which hydrolyzes PI(4,5)P-2, could have important consequences for PI(3,4,5)P-3 localization. We investigate the role of PLC in PI(3,4,5)P-3-mediated chemotaxis in Dictyostelium. plc-null cells are resistant to the PI3K inhibitor LY294002 and produce little PI(3,4,5)P-3 after cAMP stimulation, as monitored by the PI(3,4,5)P-3-specific pleckstrin homology (PH)-domain of CRAC (PH(CRAC)GFP). In contrast, PLC overexpression elevates PI(3,4,5)P-3 and impairs chemotaxis in a similar way to loss of pten. PI3K localization at the leading edge of plc-null cells is unaltered, but dissociation of PTEN from the membrane is strongly reduced in both gradient and uniform stimulation with cAMP. These results indicate that local activation of PLC can control PTEN localization and suggest a novel mechanism to regulate the internal PI(3,4,5)P-3 gradient.