The capsaicin receptor, known as transient receptor potential channel vanilloid subtype 1 (TRPV1), is activated by a wide range of noxious stimulants and putative ligands such as capsaicin, heat, pH, anandamide, and phosphorylation by protein kinase C (PKC). However, the identity of endogenous activators for TRPV1 under physiological condition is still debated. Here, we report that diacylglycerol (DAG) directly activates TRPV1 channel in a membrane-delimited manner in rat dorsal root ganglion (DRG) neurons. 1-oleoyl-2-acetyl-sn-glycerol (OAG), a membrane-permeable DAG analog, elicited intracellular Ca2+ transients, cationic currents and cobalt uptake that were blocked by TRPV1-selective antagonists, but not by inhibitors of PKC and DAG lipase in rat DRG neurons or HEK 293 cells heterologously expressing TRPV1. OAG induced responses were about one fifth of capsaicin induced signals, suggesting that OAG displays partial agonism. We also found that endogenously produced DAG can activate rat TRPV1 channels. Mutagenesis of rat TRPV1 revealed that DAG-binding site is at Y511, the same site for capsaicin binding, and PtdIns(4,5)P2binding site may not be critical for the activation of rat TRPV1 by DAG in heterologous system. We propose that DAG serves as an endogenous ligand for rat TRPV1, acting as an integrator of Gq/11-coupled receptors and receptor tyrosine kinases that are linked to phospholipase C.