Evidence suggests that the phospholipase C/protein kinase C signal transduction system participates in the regulation of epidermal cell growth and differentiation. Psoriatic epidermis is characterized by hyperproliferation, defective differentiation, and inflammation. In this report, we have determined the activity of phospholipase C-catalyzed hydrolysis of phosphatidylinositol-4,5-bisphosphate (PIP₂) and 1,2-diacylglycerol content in normal and psoriatic involved and uninvolved epidermis. 1 ,2-diacylglycerol is formed from phospholipase C-catalyzed hydrolysis of PIP₂ and is the physiologic activator of protein kinase C. PIP₂ hydrolysis was assayed in soluble and particulate fractions prepared from keratome biopsies of normal and psoriatic skin. Total lipids were extracted from normal and psoriatic epidermis and 1,2-diradylglycerol (a mixture of 1,2-diacylglycerol and 1-ether, 2-acyl-glycerol) quantitated by enzyme assay. Because 1 2-diacylglycerol is a more potent activator of protein kinase C, the relative proportions of 1,2-diacyl and 1-ether, 2-acyl-glycerol in uninvolved and involved psoriatic epidermis were determined. This was accomplished by separation of acetate derivatives of 1 ,2-diacylglycerol and 1-ether, 2-acyl-glycerol by thin layer chromatography. Soluble and membrane-associated phospholipase C-catalyzed PIP₂ hydrolysis were increased 3.7 times (p < 0.001) and 3 times (p < 0.004), respectively, in psoriatic involved compared to uninvolved and normal epidermis. 1,2-diradylglycerol content was also significantly elevated (3 times, p < 0.01) in psoriatic involved versus uninvolved and normal epidermis. Analysis of the acetate derivatives of 1 ,2-diradylglycerol in psoriatic uninvolved and involved epidermis revealed that 1 ,2-diacylglycerol was the major species (86% and 95%, respectively). There were no significant differences in either phospholipase C-catalyzed PIP₂ hydrolysis or 1,2-diacylglycerol content between uninvolved and normal epidermis. 1,2-diacylglycerol purified from normal and involved psoriatic epidermis was capable of activating protein kinase C from normal epidermis in vitro. In epidermal slices, activation of protein kinase C by addition of 12-0-tetradecanoylphorbol-13-acetate and 1,2-diacylglycerol (1,2-dioctanoylglycerol) resulted in subsequently decreased protein kinase C activity, a process termed down-regulation. These date are consistent with the possibility that the elevation in lesional 1,2-diacylglycerol content may account, in part, for the previously reported reduction of protein kinase C activity in psoriasis (Horn, Marks, Fisher, et al: J Invest Dermatol 88:220–222, 1987).