Phospholipase C of Cryptococcus neoformans (CnPlc1) is crucial for virulence of this fungal pathogen. To investigate the mechanism of CnPlc1-mediated signaling, we established that phosphatidylinositol 4,5-bisphosphate (PIP(2)) is a major CnPlc1 substrate, which is hydrolyzed to produce inositol trisphosphate (IP(3)). In Saccharomyces cerevisiae, Plc1-derived IP(3) is a substrate for the inositol polyphosphate kinase Arg82, which converts IP(3) to more complex inositol polyphosphates. We show that in C. neoformans, the enzyme encoded by ARG1 is the major IP(3) kinase, and we further demonstrate that catalytic activity of Arg1 is essential for cellular homeostasis and virulence in the Galleria mellonella infection model. IP(3) content was reduced inCnDeltaplc1 and markedly increased in CnDeltaarg1, while PIP(2) was increased in both mutants. CnDeltaplc1 and CnDeltaarg1 shared significant phenotypic similarity, including impaired thermotolerance, compromised cell walls, reduced capsule production and melanization, defective cell separation and inability to form mating filaments. In contrast to ScDeltaarg82, CnDeltaarg1 exhibited dramatically enlarged vacuoles indicative of excessive vacuolar fusion. In mammalian cells, PLC-derived IP(3) causes Ca(2+) release and calcineurin activation. Our data show that, unlike mammalian PLCs, CnPlc1 does not contribute significantly to calcineurin activation. Collectively, our findings provide the first evidence that the inositol polyphosphate anabolic pathway is essential for virulence of C. neoformans, and further show that production of IP(3) as a precursor for synthesis of more complex inositol polyphosphates is the key biochemical function of CnPlc1.