D-serine is a physiologic coagonist with glutamate at NMDA-subtype glutamate receptors. As D-serine is localized in glia, synaptically released glutamate presumably stimulates the glia to form and release D-serine, enabling glutamate/D-serine cotransmission. We show that serine racemase (SR), which generates D-serine from L-serine, is physiologically inhibited by phosphatidylinositol (4,5)-bisphosphate (PIP2) presence in membranes where SR is localized. Activation of metabotropic glutamate receptors (mGluR5) on glia leads to phospholipase C-mediated degradation of PIP2, relieving SR inhibition. Thus mutants of SR that cannot bind PIP2 lose their membrane localizations and display a 4-fold enhancement of catalytic activity. Moreover, mGluR5 activation of SR activity is abolished by inhibiting phospholipase C.