Phosphoinositide-specific phospholipase C (PLC) is a central effector for many biological responses regulated by G-protein-coupled receptors including Drosophila phototransduction where light sensitive channels are activated downstream of NORPA, a PLCβ homolog. Here we show that the sphingolipid biosynthetic enzyme, ceramide kinase, is a novel regulator of PLC signaling and photoreceptor homeostasis. A mutation in ceramide kinase specifically leads to proteolysis of NORPA, consequent loss of PLC activity, and failure in light signal transduction. The mutant photoreceptors also undergo activity-dependent degeneration. Furthermore, we show that a significant increase in ceramide, resulting from lack of ceramide kinase, perturbs the membrane microenvironment of phosphatidylinositol 4, 5, bisphosphate (PIP₂), altering its distribution. Fluorescence image correlation spectroscopic studies on model membranes suggest that an increase in ceramide decreases clustering of PIP ₂ and its partitioning into ordered membrane domains. Thus ceramide kinase-mediated maintenance of ceramide level is important for the local regulation of PIP₂ and PLC during phototransduction.