A direct role for phosphoinositides in vesicular trafficking has been demonstrated by the identification of the yeast VPS34 gene encoding the phosphatidylinositol 3-kinase responsible for the synthesis of phosphatidylinositol 3-phosphate (PtdIns3P). Vps34p binds the protein kinase Vps15p, and it has recently been shown that Vps15p and Vps34p associate with Vps30p and Vps38p to form a multimeric complex, termed complex II. We observed that mutations in the VPS30 and VPS38 genes led to a selective sorting and maturation phenotype of the soluble vacuolar protease CPY. Localization studies revealed that the CPY receptor Vps10p and the Golgi-endoprotease Kex2p were mislocalized to vacuolar membranes in strains deficient for either Vps30p or Vps38p, respectively. Interestingly, we measured decreased PtdIns3P levels in Deltavps30 and Deltavps38 cells and observed redistribution of Vps5p and Vps17p to the cytoplasm in these mutants. Vps5p and Vps17p are subunits of the retromer complex that is required for endosome-to-Golgi retrograde transport. Both proteins contain the Phox homology (PX) domain, a recently identified phosphoinositide-binding motif. We demonstrate that the PX domains of Vps5p and Vps17p specifically bind to PtdIns3P in vitro and in vivo. On the basis of these and other observations, we propose that the PtdIns 3-kinase complex II directs the synthesis of a specific endosomal pool of PtdIns3P, which is required for recruitment/activation of the retromer complex, thereby ensuring efficient endosome-to-Golgi retrograde transport.