Transient Receptor Potential Vanilloid 1 (TRPV1) is a polymodal, Ca(2+)-permeable cation channel crucial to regulation of nociceptor responsiveness. Sensitization of TRPV1 by G-protein coupled receptor (GPCR) agonists to its endogenous activators, such as low pH and noxious heat, is a key factor in hyperalgesia during tissue injury as well as pathological pain syndromes. Conversely, chronic pharmacological activation of TRPV1 by capsaicin leads to calcium influx-induced adaptation of the channel. Paradoxically, both conditions entail activation of phospholipase C (PLC) enzymes, which hydrolyze phosphoinositides. We found that in sensory neurons PLCβ activation by bradykinin led to a moderate decrease in phosphatidylinositol-4,5-bisphosphate (PI(4,5)P2), but no sustained change in the levels of its precursor PI(4)P. Preventing this selective decrease in PI(4,5)P2 inhibited TRPV1 sensitization, while selectively decreasing PI(4,5)P2 independently of PLC potentiated the sensitizing effect of protein kinase C (PKC) on the channel, thereby inducing increased TRPV1 responsiveness. Maximal pharmacological TRPV1 stimulation led to a robust decrease of both PI(4,5)P2 and its precursor PI(4)P in sensory neurons. Attenuating the decrease of either lipid significantly reduced desensitization, and simultaneous reduction of PI(4,5)P2 and PI(4)P independently of PLC inhibited TRPV1. We found that, on the mRNA level, the dominant highly Ca(2+)-sensitive PLC isoform in dorsal root ganglia is PLCδ4. Capsaicin-induced desensitization of TRPV1 currents was significantly reduced, whereas capsaicin-induced nerve impulses in the skin-nerve preparation increased in mice lacking this isoform. We propose a comprehensive model in which differential changes in phosphoinositide levels mediated by distinct PLC isoforms result in opposing changes in TRPV1 activity.