Phosphatidylinositol 3,5-bisphosphate [PI(3,5)P2] is a low-abundance signaling lipid important for the maintenance of the endomembrane system and selected membrane trafficking pathways. In yeast, in response to hyperosmotic stress, PI(3,5)P2 levels rise more than 20-fold in 5 minutes, and return to near basal levels in 30 minutes. This transient change suggests that PI(3,5)P2 levels are tightly regulated and may be involved in signaling a response to stress. In yeast, PI(3,5)P2 is synthesized through phosphorylation of PI(3)P by the PI(3)P 5-kinase Fab1. Loss of PI(3,5)P2 in yeast causes swollen vacuoles, defective retrograde trafficking from the vacuole, defective vacuole acidification, and mis-localization of a subset of vacuole lumenal proteins. In yeast, Vac14 is a regulator of PI(3,5)P2 levels. Mammalian Vac14 and Fab1 are found in the same complex. To study the physiological significance of PI(3,5)P2, a mouse strain was generated with the Vac14 gene disrupted by a gene-trap genomic insertion. Vac14 protein was not detectable in mutant mice. In fibroblasts cultured from the mutant mice, PI(3,5)P2 and PI(5)P are decreased to 42% and 44% of the corresponding wild-type levels, respectively. The mutant mouse brains exhibit spongiform-like morphology. Cytoplasmic vacuoles are found in neuronal cell bodies of the olfactory bulb, trigeminal ganglion, and dorsal root ganglion. Non-neural tissues appear largely normal. Similar vacuoles are also found in cultured neurons and fibroblasts. In fibroblasts, these vacuoles are formed from swelling of late endosomes/lysosomes. Some early endosomes are also enlarged. A population of cation-independent mannose-6-phosphate receptor (CI-M6PR), which recycles between endosomes and the trans-Golgi network (TGN), is trapped in early and late endosomes, indicating a block in endosome-to-TGN trafficking. These results suggest that: 1) Neurons are acutely sensitive to loss of PI(3,5)P2. 2) In mammals, PI(3,5)P2 is required for the morphology of late endosomes/lysosomes and retrograde trafficking from endosomes to the TGN. The first conclusion is supported by another mouse strain with a retro-transposon inserted in the Fig4 gene. Fig4 is another regulator of PI(3,5)P2 levels. Similar neurodegeneration was observed in the Fig4 mutant mice.