Cold is detected by a small subpopulation of peripheral thermoreceptors. TRPM8, a cloned menthol- and cold-sensitive ion channel, has been suggested to mediate cold transduction in the innocuous range. The channel shows a robust response in whole-cell recordings but exhibits markedly reduced activity in excised membrane patches. Here we report that phosphatidylinositol 4,5-bisphosphate (PIP₂) is an essential regulator of the channel function. The rundown of the channel is prevented by lipid phosphatase inhibitors. Application of exogenous PIP₂ both activates the channel directly and restores rundown activity. Whole-cell experiments involving intracellular dialysis with polyvalent cations, inhibition of PIP₂ synthesis kinases, and receptor-mediated hydrolysis of PIP₂ show that PIP₂ also modulates the channel activity in the intact cells. The crucial role of PIP₂ on the function of TRPM8 suggests that the membrane PIP₂ level may be an important regulator of cold transduction in vivo. The opposite effects of PIP₂ on the vanilloid receptor TRPV1 and TRPM8 also implies that the membrane lipid may have dual actions as a bimodal switch to selectively control the heat- and cold-induced responses in nociceptors expressing both channels.