Best vitelliform macular dystrophy is an inherited autosomal dominant, juvenile onset form of macular degeneration caused by mutations in a chloride ion channel, human bestrophin-1 (hBest1). Mutations in Best1 have also been linked to several other forms of retinopathy. In addition to mutations, hBest1 dysfunction might come about by disruption of other processes that regulate Best1 function. Here we show that hBest1 chloride channel activity is regulated by ceramide and phosphorylation. We have identified a protein kinase C (PKC) phosphorylation site (serine 358) in hBest1 that is important for sustained channel function. Channel activity is maintained by PKC activators, protein phosphatase inhibitors, or pseudo-phosphorylation by substitution of glutamic acid for serine 358. When ceramide levels are elevated by exogenous addition of ceramide to the bath, by addition of bacterial sphingomyelinase, or by hypertonic stress, S358 is rapidly dephosphorylated. The dephosphorylation is mediated by protein phosphatase 2A. Hypertonic stress-induced dephosphorylation is blocked by a dihydroceramide, an inactive form of ceramide, and manumycin, an inhibitor of neutral sphingomyelinase. Our results support a model in which ceramide accumulation during early stages of retinopathy inhibits hBest1 function, leading to abnormal fluid transport across the retina, and enhanced inflammation.