Members of the intracellular phospholipase A1 family of proteins have been implicated in organelle biogenesis and membrane trafficking. The mammalian family comprises three members: phosphatidic acid-preferring phospholipase A1 (PA-PIA1)/DDHD1, p125/Sec23ip and KIAA0725p/DDHD2, all of which have a DDHD domain. PA-PLAI is mostly cytosolic, while KIAA0725p and p125 are more stably associated with the Golgi/endoplasmic reticulum (ER)-Golgi intermediate compartment (ERGIC) and ER exit sites, respectively. Here we show that KIAAO725p and p125 are novel phosphoinositide-binding proteins. Deletion and mutational analyses of KIAAO725p suggested that a sterile alpha-motif (SAM), which is also present inp125, but not in cytosolic PA-PLAI, and the following DDHD domain comprise a minimal region for phosphatidylinositol 4-phosphate (Pl(4)P)-binding. A construct with mutations in the positively charged cluster of the SAM domain is defective in both phosphoinositide-binding and Golgi/ERGIC targeting. Consistent with the view that the Pl(4)P-binding is important for the membrane association of KIAA0725p, expression of phosphoinositide phosphatase Sacd reduces the association of expressed KIAAO725p with membranes. In addition, we show that deletion of the DDHD domain or introduction of point mutations at the conserved aspartate or histidine residues in the domain abolishes the phospholipase activity of KIAAO725p and PA-PLA1. Together, our results suggest that KIAAO725p is targeted to specific organelle membranes in a phosphoinositide-dependent manner, and that its SAM and DDHD domains are essential for its phosphoinositide-binding and phospholipase activity.