Sac family phosphoinositide phosphatases comprise an evolutionarily conserved family of enzymes in eukaryotes. Our recently determined crystal structure of the Sac phosphatase domain of yeast Sac1, the founding member of the Sac family proteins, revealed a unique conformation of the catalytic P-loop and a large positively charged groove at the catalytic site. We now report a unique mechanism for the regulation of its phosphatase activity. Sac1 is an allosteric enzyme that can be activated by its product phosphatidylinositol or anionic phospholipid phosphatidylserine. The activation of Sac1 may involve conformational changes of the catalytic P-loop induced by direct binding with the regulatory anionic phospholipids in the large cationic catalytic groove. These findings highlight the fact that lipid composition of the substrate membrane plays an important role in the control of Sac1 function.