The KCNQ family of potassium channels underlie a repolarizing K(+) current in the heart and the M-current in neurones. The assembly of KCNQ1 with KCNE1 generates the delayed rectifier current I(Ks) in the heart. Characteristically these channels are regulated via G(q/11)-coupled receptors and the inhibition seen after phospholipase C activation is now thought to occur from membrane phosphatidylinositol (4,5)-bisphosphate (PIP(2)) depletion. It is not clear how KCNQ1 recognizes PIP(2) and specifically which residues in the channel complex are important. Using biochemical techniques we identify a cluster of basic residues namely, Lys-354, Lys-358, Arg-360, and Lys-362, in the proximal C terminus as being involved in binding anionic phospholipids. The mutation of specific residues in combination, to alanine leads to the loss of binding to phosphoinositides. Functionally, the introduction of these mutations into KCNQ1 leads to shifts in the voltage dependence of channel activation toward depolarized potentials and reductions in current density. Additionally, the biophysical effects of the charge neutralizing mutations, which disrupt phosphoinositide binding, mirror the effects we see on channel function when we deplete cellular PIP(2) levels through activation of a G(q/11)-coupled receptor. Conversely, the addition of diC8-PIP(2) to the wild-type channel, but not a PIP(2) binding-deficient mutant, acts to shift the voltage dependence of channel activation toward hyperpolarized potentials and increase current density. In conclusion, we use a combined biochemical and functional approach to identify a cluster of basic residues important for the binding and action of anionic phospholipids on the KCNQ1/KCNE1 complex.