1. The mechanism of acetylcholine-stimulated breakdown of phosphatidyl-myo-inositol 4,5-bisphosphate and its dependence on extracellular Ca(2+) was investigated in the rabbit iris smooth muscle. 2. Acetylcholine (50mum) increased the breakdown of phosphatidylinositol bisphosphate in [(3)H]inositol-labelled muscle by 28% and the labelling of phosphatidylinositol by 24% of that of the control. Under the same experimental conditions there was a 33 and 48% increase in the production of (3)H-labelled inositol trisphosphate and inositol monophosphate respectively. Similarly carbamoylcholine and ionophore A23187 increased the production of these water-soluble inositol phosphates. Little change was observed in the (3)H radioactivity of inositol bisphosphate. 3. Both inositol trisphosphatase and inositol monophosphatase were demonstrated in subcellular fractions of this tissue and the specific activity of the former was severalfold higher than that of the latter. 4. The acetylcholine-stimulated production of inositol trisphosphate and inositol monophosphate was inhibited by atropine (20mum), but not tubocurarine (100mum); and it was abolished by depletion of extracellular Ca(2+) with EGTA, but restored on addition of low concentrations of Ca(2+) (20mum). 5. Calcium-antagonistic agents, such as verapamil (20mum), dibenamine (20mum) or La(3+) (2mm), also abolished the production of the water-soluble inositol phosphates in response to acetylcholine. 6. Release of inositol trisphosphate from exogenous phosphatidylinositol bisphosphate by iris muscle microsomal fraction (;microsomes') was stimulated by 43% in the presence of 50mum-Ca(2+). 7. The results indicate that increased Ca(2+) influx into the iris smooth muscle by acetylcholine and ionophore A23187 markedly activates phosphatidylinositol bisphosphate phosphodiesterase and subsequently increases the production of inositol trisphosphate and its hydrolytic product inositol monophosphate. The marked increase observed in the production of inositol monophosphate could also result from Ca(2+) activation of phosphatidylinositol phosphodiesterase. However, there was no concomitant decrease in the (3)H radioactivity of this phospholipid.