Phogrin is a transmembrane protein expressed in cells with stimulus-coupled peptide hormone secretion, including pancreatic beta cells, in which it is localized to the membrane of insulin-containing dense-core vesicles. By sequence, phogrin is a member of the family of receptor-like protein-tyrosine phosphatases, but it contains substitutions in conserved catalytic sequences, and no significant enzymatic activity for phogrin has ever been reported. We report here that phogrin is able to dephosphorylate specific inositol phospholipids, including phosphatidylinositol (PI) 3-phosphate and PI 4,5-diphosphate but not PI 3,4,5-trisphosphate. The phosphatidylinositol phosphatase (PIPase) activity of phogrin was measurable but low when evaluated by the ability of a catalytic domain fusion protein to hydrolyze soluble short-chain phosphatidylinositol phospholipids. Unlike most PIPases, which are cytoplasmic proteins that associate with membranes, mature phogrin is a transmembrane protein. When the transmembrane form of phogrin was overexpressed in mammalian cells, it reduced plasma membrane phosphatidylinositol 4,5-disphosphate levels in a dose-dependent manner. When purified and assayed in vitro, the transmembrane form had a specific activity of 142 mol/min/mol, 75-fold more active than the catalytic domain fusion protein and comparable with the specific activities of the other PIPases. The PIPase activity of phogrin depended on the catalytic site cysteine and correlated with effects on glucose-stimulated insulin secretion. We propose that phogrin functions as a phosphatidylinositol phosphatase that contributes to maintaining subcellular differences in levels of PIP that are important for regulating stimulus-coupled exocytosis of insulin.