Phosphatidylinositol 4-phosphate (PtdIns(4)P) regulates diverse cellular processes, such as actin cytoskeletal organization, Golgi trafficking and vacuolar biogenesis. Synthesis and turnover of PtdIns(4)P is mediated by a set of specific lipid kinases and phosphatases. Here we show that the polyphosphoinositide phosphatase Sac1p has a central role in compartment-specific regulation of PtdIns(4)P. We have found that sac1Delta mutants show pleiotropic, synthetically lethal interactions with mutations in genes required for vacuolar protein sorting (Vps). Disruption of the SAC1 gene also caused a defect in the late endocytic pathway. These trafficking phenotypes correlated with a dramatic accumulation of PtdIns(4)P at vacuolar membranes. In addition, sac1 mutants displayed elevated endoplasmic reticulum PtdIns(4)P. The accumulation of PtdIns(4)P at the endoplasmic reticulum and vacuole and the endocytic defect could be compensated by mutations in the PtdIns 4-kinase Stt4p. Our results indicate that elimination of Sac1p causes accumulation of a Stt4p-specific PtdIns(4)P pool at internal membranes which impairs late endocytic and vacuolar trafficking. We conclude that Sac1p functions in confining PtdIns(4)P-dependent processes to specific intracellular membranes.