Dynamin I is phosphorylated in nerve terminals exclusively in the cytosolic compartment and in vitro by protein kinase C (PKC). Dephosphorylation is required for synaptic vesicle retrieval, suggesting that its phosphorylation affects its subcellular localization. An in vitro phospholipid binding assay was established that prevents lipid vesiculation and dynamin lipid insertion into the lipid. Dynamin I bound the phospholipid in a concentration-dependent and saturable manner, with an apparent affinity of 230 +/- 51 nM. Optimal binding occurred with mixtures of phosphatidylserine and phosphatidylcholine of 1:3 with little binding to phosphatidylcholine or phosphatidylserine alone. Phospholipid binding was abolished after dynamin I phosphorylation by PKC and was restored after dephosphorylation by calcineurin. Matrix-assisted laser desorption/ionization-time of flight mass spectrometry revealed the phosphorylation site in PKCalpha-phosphorylated dynamin I as a single site at Ser-795, located near a binding site for the SH3 domain of p85, the regulatory subunit of phosphatidylinositol 3-kinase. However, phosphorylation had no effect on dynamin binding to a bacterially expressed p85-SH3 domain. Thus, phosphorylation of dynamin I on Ser-795 prevents its association with phospholipid, providing a basis for the cytosolic localization of the minor pool of phospho-dynamin I that mediates synaptic vesicle retrieval in nerve terminals.