K⁺ channels participate in the regulatory volume decrease (RVD) accompanying hepatocellular nutrient uptake and bile formation. We recently identified KCNQ1 as a molecular candidate for a significant fraction of the hepatocellular swelling-activated K⁺ current (I_KVol). Here we show that the KCNQ1 inhibitor, chromanol 293B, significantly inhibited RVD-associated K⁺ flux in the isolated perfused rat liver and used patch clamp techniques to define the signalling pathway linking swelling to I_KVol activation. Patch electrode dialysis of hepatocytes with solutions that maintain or increase phosphatidylinositol-4,5-bis-phosphate (PIP₂) increased I_KVol, whereas conditions that decrease cellular PIP₂ decreased I_KVol. GTP and AlF₄- stimulated I_KVol development, suggesting a role for G-proteins and phospholipase C (PLC). Supporting this, the PLC blocker U-73122 decreased I_KVol and inhibited the stimulatory response to PIP₂ or GTP. Protein kinase C (PKC) is involved since K⁺ current was enhanced by 1-oleoyl-2-acetyl-glycerol and inhibited following chronic PKC stimulation with phorbol-12-myristate-13-acetate (PMA) or the PKC inhibitor GF-109203X. Both I_KVol and the accompanying membrane capacitance increase were blocked by cytochalasin-D or GF-109203X. Acute PMA did not eliminate the cytochalasin-D inhibition, suggesting that PKC-mediated I_KVol activation involves the cytoskeleton. Under isotonic conditions a slowly developing K⁺ current similar to I_KVol was activated by PIP₂, lipid phosphatase inhibitors to counter PIP₂ depletion, a PLC-coupled ₁-adrenoceptor agonist, or PKC activators, and depressed by PKC inhibition, suggesting that hypotonicity is one of a set of stimuli that can activate I_KVol through a PIP₂/PKC-dependent pathway. The results indicate that PIP₂ indirectly activates hepatocellular KCNQ1-like channels via cytoskeletal rearrangement involving PKC activation.