Presynaptic activation of the diacylglycerol (DAG)/protein kinase C (PKC) pathway is a central event in short-term synaptic plasticity. Two substrates, Munc13-1 and Munc18-1, are essential for DAG-induced potentiation of vesicle priming, but the role of most presynaptic PKC substrates is not understood. Here, we show that a mutation in synaptotagmin-1 (Syt1(T112A)), which prevents its PKC-dependent phosphorylation, abolishes DAG-induced potentiation of synaptic transmission in hippocampal neurons. This mutant also reduces potentiation of spontaneous release, but only if alternative Ca(2+)sensors, Doc2A/B proteins, are absent. However, unlike mutations in Munc13-1 or Munc18-1 that prevent DAG-induced potentiation, the synaptotagmin-1 mutation does not affect paired-pulse facilitation. Furthermore, experiments to probe vesicle priming (recovery after train stimulation and dual application of hypertonic solutions) also reveal no abnormalities. Expression of synaptotagmin-2, which lacks a seven amino acid sequence that contains the phosphorylation site in synaptotagmin-1, or a synaptotagmin-1 variant with these seven residues removed (Syt1(Δ109-116)), supports normal DAG-induced potentiation. These data suggest that this seven residue sequence in synaptotagmin-1 situated in the linker between the transmembrane and C2A domains is inhibitory in the unphosphorylated state and becomes permissive of potentiation upon phosphorylation. We conclude that synaptotagmin-1 phosphorylation is an essential step in PKC-dependent potentiation of synaptic transmission, acting downstream of the two other essential DAG/PKC substrates, Munc13-1 and Munc18-1.