Kir2.0 channels play a significant role in setting the resting membrane potential, modulating action potential wave form, and buffering extracellular potassium. One member of this family, Kir2.3, is highly expressed in the heart and brain and is modulated by a variety of factors, including arachidonic acid (AA). Using two-electrode voltage clamp and inside-out patch clamp recordings from Xenopus laevis oocytes expressing Kir2.3 channels, we found that AA selectively activated Kir2.3 channels with an EC(50) of 0.59 muM and that this activation required phosphatidyl inositol 4,5-bisphosphate (PIP(2)). We found that AA activated Kir2.3 by enhancing channel-PIP(2) interactions as demonstrated by a shift in PIP(2) activation curve. EC(50) for channel activation by PIP(2) were 36 and 12 muM in the absence and presence of AA, respectively. A single point mutation on the channel C terminus that enhanced basal channel-PIP(2) interactions reduced the sensitivity of the channel to AA. Effects of AA are mediated through cytoplasmic sites on the channel by increasing the open probability, mainly due to more frequent bursts of opening in the presence of PIP(2). Therefore, enhanced interaction with PIP(2) is the molecular mechanism for Kir2.3 channel activation by AA.