The polyphosphoinositides phosphatidylinositol 4-monophosphate (PIP) and phosphatidylinositol 4,5-bisphosphate (PIP2) inactivate the actin filament-severing proteins villin and gelsolin and dissociate them from monomeric and polymeric actin. A potential polyphosphoinositide- (PPI) binding site of human plasma gelsolin regulating filament severing has been localized to the region between residues 150-169 and to the corresponding region in villin which occurs in the second of six homologous domains present in both proteins. Synthetic peptides based on these sequences bind tightly to both PIP and PIP2, in either micelles or bilayer vesicles, compete with gelsolin for binding to PPIs, and dissociate gelsolin-PIP2 complexes, restoring severing activity to the protein. These peptides also bind with moderate affinity to F-actin, suggesting that inactivation of the severing function of the intact proteins by PPIs results from competition between actin and PPIs for a critical binding site on gelsolin-villin. The PPI-binding peptides contain numerous basic amino acids, but their effects on PPIs are far greater than those of Arg or Lys oligomers, a highly basic peptide derived from the calmodulin-binding site of myristoylated, alanine-rich kinase C substrate protein, or the 5-kDa actin-binding protein thymosin beta-4, suggesting that specific aspects of the primary and secondary structure of these basic peptides are important for their interaction with the acidic headgroups of PPIs. In addition to elucidating the structure of PIP2-binding sites in gelsolin, the results describe a sensitive assay for phosphoinositide-binding molecules based on their ability to prevent inhibition of gelsolin function.