Yeast vacuoles undergo cycles of fragmentation and fusion as part of their transmission to the daughter cell and in response to changes of nutrients and the environment. Vacuole fusion can be reconstituted in a cell free system. We now show that the vacuoles synthesize phosphoinositides during in vitro fusion. Of these phosphoinositides, phosphatidylinositol 4-phosphate and phosphatidylinositol 4,5-bisphosphate (PI(4,5)P(2)) are important for fusion. Monoclonal antibodies to PI(4,5)P(2), neomycin (a phosphoinositide ligand), and phosphatidylinositol-specific phospholipase C interfere with the reaction. Readdition of PI(4, 5)P(2) restores fusion in each case. Phosphatidylinositol 3-phosphate and PI(3,5)P(2) synthesis are not required. PI(4,5)P(2) is necessary for priming, i.e., for the Sec18p (NSF)-driven release of Sec17p (alpha-SNAP), which activates the vacuoles for subsequent tethering and docking. Therefore, it represents the kinetically earliest requirement identified for vacuole fusion so far. Furthermore, PI(4,5)P(2) is required at a step that can only occur after docking but before the BAPTA sensitive step in the latest stage of the reaction. We hence propose that PI(4,5)P(2) controls two steps of vacuole fusion.