Abstract Absence of Isc1, the yeast homologue of mammalian neutral sphingomyelinase type 2, leads to severe mitochondrial dysfunction. We show that deletion of another type-C phospholipase, the phosphatidylglycerol (PG)-specific Pgc1, rescues this defect. Phosphatidylethanolamine (PE) levels and cytochrome c oxidase activity, reduced in isc1 Δ cells, were restored to wild-type levels in the pgc1 Δ isc1 Δ mutant. Pgc1 substrate, PG, inhibited in vitro activity of Isc1 and phosphatidylserine decarboxylase Psd1, an enzyme crucial for PE biosynthesis. We also identify a mechanism by which the balance between the current demand for PG and its consumption is controlled. We document that the product of PG hydrolysis, diacylglycerol, competes with the substrate of PG-phosphate synthase, Pgs1, and thereby inhibits the biosynthesis of excess PG. This feedback loop does not work in the absence of Pgc1, which catalyzes PG degradation. Finally, Pgc1 activity is partially inhibited by products of Isc1-mediated hydrolysis. The described functional interconnection of the two phospholipases contributes significantly to lipid homeostasis throughout the cellular architecture. Summary The coordinated action of two different type-C phospholipases is documented, which provides a balance between mitochondrial phospholipid biosynthesis and sphingolipid metabolism. The regulatory role of specific lipids, phosphatidylglycerol, diacylglycerol and ceramide in this process is demonstrated.