Ca2+ efficiently inhibits binding of inositol 1,4,5-trisphosphate (InsP3) to the InsP3 receptor in cerebellar membranes but not to the purified receptor. We have now investigated the mechanism of action by which Ca2+ inhibits InsP3 binding. Our results suggest that Ca2+ does not cause the stable association of a Ca(2+)-binding protein with the receptor. Instead, Ca2+ leads to the production of a soluble, heat-stable, low molecular weight substance from cerebellar membranes that competes with InsP3 for binding. This inhibitory substance probably represents endogenously generated InsP3 as judged by the fact that it co-purifies with InsP3 on anion-exchange chromatography, competes with [3H]InsP3 binding in a pattern similar to unlabeled InsP3, and is in itself capable of releasing 45Ca2+ from permeabilized cells. A potent Ca(2+)-activated phospholipase C activity producing InsP3 was found in cerebellar microsomes that exhibited a Ca2+ dependence identical to the Ca(2+)-dependent inhibition of InsP3 binding. Together these results suggest that the Ca(2+)-dependent inhibition of InsP3 binding to the cerebellar receptor is due to activation of a Ca(2+)-sensitive phospholipase C enriched in cerebellum. Nevertheless, Ca2+ probably also modulates the InsP3 receptor function by a direct interaction with the receptor that does not affect InsP3 binding but regulates InsP3-dependent channel gating.