Yeast vacuoles fragment and fuse in response to environmental conditions, such as changes in osmotic conditions or nutrient availability. Here we analyze osmotically induced vacuole fragmentation by time-lapse microscopy. Small fragmentation products originate directly from the large central vacuole. This happens by asymmetrical scission rather than by consecutive equal divisions. Fragmentation occurs in two distinct phases. Initially, vacuoles shrink and generate deep invaginations that leave behind tubular structures in their vicinity. Already this invagination requires the dynamin-like GTPase Vps1p and the vacuolar proton gradient. Invaginations are stabilized by phosphatidylinositol 3-phosphate (PI(3)P) produced by the phosphoinositide 3-kinase complex II. Subsequently, vesicles pinch off from the tips of the tubular structures in a polarized manner, directly generating fragmentation products of the final size. This phase depends on the production of phosphatidylinositol-3,5-bisphosphate and the Fab1 complex. It is accelerated by the PI(3)P- and phosphatidylinositol 3,5-bisphosphate-binding protein Atg18p. Thus vacuoles fragment in two steps with distinct protein and lipid requirements.