Recent work from our laboratory demonstrated that phosphatidic acid (PA) and phosphatidylinositol 4,5-bisphosphate (PtdIns(4,5)P(2)), are required to maintain the structural integrity of the Golgi apparatus. To investigate the role of these lipids in regulating Golgi structure and function, we developed a novel assay to follow the release of post-Golgi vesicles. Isolated rat liver Golgi membranes were incubated with [(3)H]CMP sialic acid to radiolabel endogenous soluble and membrane glycoproteins present in the late Golgi and trans-Golgi network. The release of post-Golgi secretory vesicles was determined by measuring incorporation of (3)H-labeled proteins into a medium speed supernatant. Vesicle budding was dependent on temperature, cytosol, energy and time. Electron microscopy of Golgi fractions prior to and after incubation demonstrated that the stacked Golgi cisternae generated a heterogeneous population of vesicles (50- to 350-nm diameter). Inhibition of phospholipase D-mediated PA synthesis, by incubation with 1-butanol, resulted in the complete fragmentation of the Golgi membranes in vitro into 50- to 100-nm vesicles; this correlated with diminished PtdIns(4,5)P(2) synthesis. Following alcohol washout, PA synthesis resumed and in the presence of cytosol PtdIns(4,5)P(2) synthesis was restored. Most significantly, under these conditions the fragmented Golgi elements reformed into flattened cisternae and the re-assembled Golgi supported vesicle release. These data demonstrate that inositol phospholipid synthesis is essential for the structure and function of the Golgi apparatus.