Inositol lipids play a major role in cell signaling by functioning as precursors of second messengers. Of the three common inositol-containing lipids found in the plasma membrane, phosphatidylinositol (4,5)-bisphosphate is hydrolyzed to give diacylglycerol, which stimulates protein kinase C, and inositol 1,4,5-trisphosphate, which diffuses into the cell to release intracellular calcium. Inositol 1,4,5-trisphosphate is metabolized to give free inositol by two separate pathways. Lithium inhibits the final dephosphorylation step of both pathways, thus reducing the supply of the free inositol required to maintain the lipid precursors used for signaling. An inositol-depletion hypothesis may explain both the teratogenic effects of lithium and its therapeutic action in controlling manic-depressive illness. One of the metabolic pathways generates inositol tetrakisphosphate, which may also play a messenger role by expanding the size of the inositol 1,4,5-trisphosphate—sensitive pool of calcium. Calcium imaging of single cells has begun to reveal that this inositol 1,4,5-trisphosphate/calcium signaling system is organized in complex patterns, which include localization of calcium signals to discrete regions of cells and the generation of both calcium waves and calcium oscillations.