Saccharomyces cerevisiae possesses a transient receptor potential (TRP) channel homolog TRPY1 in its vacuolar membrane, considered to be an ancestral TRP channel. So far, studies have focused on the channel properties of TRPY1, but its regulation and physiologic role remained to be elucidated. Here, we investigated TRPY1 channel function in vitro and in vivo. Patch-clamp recording of TRPY1 in yeast vacuolar membranes showed that Ca2+ on the lumen side inhibited TRPY1-mediated channel activity, whereas luminal Zn2+ increased the currents. TRPY1 was activated in the presence of a reducing agent, 2-mercaptoethanol. The cysteine at position 624 was identified as the target for this activating action. This activation was independent of the presence of cytosolic Ca2+. The amplitude of TRPY1-mediated current was reduced by addition of phosphatidylinositol 3-phosphate on the cytosolic side but not by phosphatidylinositol (PI) or phosphatidylinositol 3,5-phosphate. Measurement of the transient Ca2+ increase in response to hyper-osmotic shock in several yeast mutants defective in different steps of the PI phosphate biogenesis pathway supported this interpretation. Addition of a microtubule inhibitor strongly decreased the transient cytosolic Ca2+ increase upon hyper-osmotic shock. Taken together, the data indicate that the vacuolar TRPY1 Ca2+ channel mediates the perception of cytosolic signals that were induced by external changes in osmolarity, and participates in the modulation of cytosolic calcium signaling through Ca2+ release from the vacuole to maintain intracellular Ca2+ homeostasis in yeast.