Photoreceptor cells adapt to bright or continuous light, although the molecular mechanisms underlying this phenomenon are incompletely understood. Here, we report a mechanism of light adaptation in Drosophila, which is regulated by phosphoinositides (PIs). We found that light-dependent translocation of arrestin was defective in mutants that disrupt PI metabolism or trafficking. Arrestin bound to PIP(3) in vitro, and mutation of this site delayed arrestin shuttling and resulted in defects in the termination of the light response, which is normally accelerated by prior exposure to light. Disruption of the arrestin/PI interaction also suppressed retinal degeneration caused by excessive endocytosis of rhodopsin/arrestin complexes. These findings indicate that light-dependent trafficking of arrestin is regulated by direct interaction with PIs and is required for light adaptation. Since phospholipase C activity is required for activation of Drosophila phototransduction, these data point to a dual role of PIs in phototransduction.