In Drosophila, a phospholipase C-mediated signaling cascade links photoexcitation of rhodopsin to the opening of the TRP/TRPL channels. A lipid product of the cascade, diacylglycerol (DAG) and its metabolite(s), polyunsaturated fatty acids (PUFAs), have both been proposed as potential excitatory messengers. A crucial enzyme in the understanding of this process is likely to be DAG lipase (DAGL). However, DAGLs that might fulfill this role have not been previously identified in any organism. In this work, the Drosophila DAGL gene, inaE, has been identified from mutants that are defective in photoreceptor responses to light. The inaE-encoded protein isoforms show high sequence similarity to known mammalian DAG lipases, exhibit DAG lipase activity in vitro, and are highly expressed in photoreceptors. Analyses of norpA inaE double mutants and severe inaE mutants show that normal DAGL activity is required for the generation of physiologically meaningful photoreceptor responses.