ABSTRACT: Regulation of the heat- and capsaicin-activated transient receptor potential vanilloid 1 (TRPV1) channel by phosphoinositides is complex and controversial. In the most recent TRPV1 cryo-EM structure, endogenous phosphatidylinositol (PtdIns) was detected in the vanilloid binding site, and phosphoinositides were proposed to act as competitive vanilloid antagonists. This model is difficult to reconcile with phosphatidylinositol 4,5-bisphosphate [PtdIns(4,5)P2] being a well-established positive regulator of TRPV1. Here we show that in the presence of PtdIns(4,5)P2 in excised patches, PtdIns, but not PtdIns(4)P, partially inhibited TRPV1 activity at low, but not at high capsaicin concentrations. This is consistent with PtdIns acting as a competitive vanilloid antagonist. However, in the absence of PtdIns(4,5)P2, PtdIns partially stimulated TRPV1 activity. We computationally identified residues, which are in contact with PtdIns, but not with capsaicin in the vanilloid binding site. The I703A mutant of TRPV1 showed increased sensitivity to capsaicin, as expected when removing the effect of an endogenous competitive antagonist. I703A was not inhibited by PtdIns in the presence of PtdIns(4,5)P2, but it was still activated by PtdIns in the absence of PtdIns(4,5)P2 indicating that inhibition, but not activation by PtdIns proceeds via the vanilloid binding site. In molecular dynamics simulations, PtdIns was more stable than PtdIns(4,5)P2 in this inhibitory site, whereas PtdIns(4,5)P2 was more stable than PtdIns in a previously identified, nonoverlapping, putative activating binding site. Our data indicate that phosphoinositides regulate channel activity via functionally distinct binding sites, which may explain some of the complexities of the effects of these lipids on TRPV1.