PlcHR(2) is the paradigm member of a novel phospholipase C/phosphatase superfamily, with members in a variety of bacterial species. This paper describes the phospholipase C and sphingomyelinase activities of PlcHR(2) when the substrate is in the form of large unilamellar vesicles, and the subsequent effects of lipid hydrolysis on vesicle and bilayer stability, including vesicle fusion. PlcHR(2) cleaves phosphatidylcholine and sphingomyelin at equal rates, but is inactive on phospholipids that lack choline head groups. Calcium in the millimolar range does not modify in any significant way the hydrolytic activity of PlcHR(2) on choline-containing phospholipids. The catalytic activity of the enzyme induces vesicle fusion, as demonstrated by the concomitant observation of intervesicular total lipid mixing, inner monolayer-lipid mixing, and aqueous contents mixing. No release of vesicular contents is detected under these conditions. The presence of phosphatidylserine in the vesicle composition does not modify significantly PlcHR(2)-induced liposome aggregation, as long as Ca(2+) is present, but completely abolishes fusion, even in the presence of the cation. Each of the various enzyme-induced phenomena have their characteristic latency periods, that increase in the order lipid hydrolysis<vesicle aggregation<total lipid mixing<inner lipid mixing<contents mixing. Concomitant measurements of the threshold diacylglyceride+ceramide concentrations in the bilayer show that late events, e.g. lipid mixing, require a higher concentration of PlcHR(2) products than early ones, e.g. aggregation. When the above results are examined in the context of the membrane effects of other phospholipid phosphocholine hydrolases it can be concluded that aggregation is necessary, but not sufficient for membrane fusion to occur, that diacylglycerol is far more fusogenic than ceramide, and that vesicle membrane permeabilization occurs independently from vesicle fusion.