As a step toward the elucidation of mechanisms in vesicle budding, a cell-free assay that measures cytosol-induced vesicle generation from liposomes was established. This assay then was used to explore the role of phosphoinositides in vesicle formation. Liposomes incubated with brain cytosol in the presence of ATP and GTP massively generated small vesicles, as assessed both quantitatively and qualitatively by a dynamic light-scattering assay. Both ATP and GTP were required. Vesicle formation was inhibited greatly by the immunodepletion of dynamin 1 from the cytosol, indicating a major contribution of this GTPase in this reaction and suggesting that it mimics endocytic vesicle fission. I n eukaryotic cells, transport vesicles are implicated in a variety of intracellular traffic events in both the secretory and endocytic pathways. The formation of a carrier vesicle is initiated by the recruitment of cytosolic coat proteins to the cytoplasmic surface of the donor membrane. One of the functions of the coat is to provide a scaffold for the formation of a high-curvature membrane bud. The coated bud then is pinched off as a coated vesicle, which eventually sheds the coat before fusion with its acceptor compartment. Several types of coats including the COPI, COPII, and clathrin coats have been characterized extensively (reviewed in refs. 1-7).Recently, the role of lipid factors is becoming a focus of the investigation in the field of membrane-coat interactions (7-11). Growing evidence suggests a key function of phosphoinositides and in particular phosphatidylinositol 4,5-bisphosphate [PtdIns(4,5)P 2 ] in the recruitment of endocytic coats. PtdIns(4,5)P 2 binds to a variety of proteins that function in endocytic traffic including the ␣-subunit of clathrin adaptor protein (AP)2 (12), AP180, CALM (13), dynamin (14), and epsin (15). Phosphoinositides affect AP2's self-assembly (12, 16) and stimulate dynamin's GTPase activity (17,18). Furthermore, disruption of these interactions in living cells resulted in inhibition of endocytosis (15,19). Strong evidence for a physiological role of phosphoinositide metabolism in endocytosis came from the identification and functional characterization of a synaptic polyphosphoinositide phosphatase, synaptojanin 1 (20). Genetic deletion of synaptojanin in mice (21) and Caenorhabditis elegans (22) or disruption of the interactions of synaptojanin with its functional partners (23) resulted in a partial impairment of synaptic vesicle recycling and an increase of clathrin-coated vesicles and the coated pits. Conversely, an enzyme that synthesizes PtdIns(4,5)P 2 from PtdIns 4-monophosphate [PtdIns (4)P], PtdIns (4)P 5-kinase I␥, was shown recently to be concentrated at the synapse (24). Thus, the PtdIns(4,5)P 2 level at the synapse is likely to result from a balance of the enzymatic activities of synaptojanin and PtdIns (4)P 5-kinase.In vitro reconstitution of specific steps of vesicular transport reactions represents an increasingly important strategy to elucidate molecular mechanisms involved ...