Phosphoinositides, a family of phosphorylated derivatives of phosphatidylinositol (PtdIns), are tightly regulated both temporally and spatially by PtdIns phosphatases and kinases. Mutations in Inositol polyphosphate 5-phosphatase E (INPP5E) cause Joubert syndrome, a human disorder associated with numerous ciliopathic defects including renal cyst formation, linking phosphoinositides to ciliopathies. However, the molecular mechanism by which INPP5E-mediated phosphatidylinositol signaling regulates ciliogenesis and cystogenesis is unclear. Here, we utilize an in vivo vertebrate model of renal cystogenesis to show that Inpp5e functions in both by hydrolyzing PtdIns(3,4,5)P3 and stabilizing PtdIns(4,5)P2 at the apical membrane, which in turn directs apical docking of basal bodies in renal epithelia. Knockdown or knockout of inpp5e leads to ciliogenesis defects and cystic kidney in zebrafish. Furthermore, knockdown of inpp5e in embryos leads to defects in cell polarity, cortical organization of F-actin, apical docking of basal bodies, and apical segregation of PtdIns(4,5)P2 and PtdIns(3,4,5)P3. Knockdown of ezrin, which encodes an ERM (Ezrin, Radixin and Moesin) protein that crosslinks PtdIns(4,5)P2 and F-actin, phenocopied inpp5e knockdowns. Strikingly, overexpression of ezrin rescued inpp5e morphants, suggesting that ezrin functions downstream of inpp5e. Finally, treatment with the PtdIns(3,4,5)P3 inhibitor, LY294002, rescues the cellular, phenotypic and renal function defects in inpp5e knockdown embryos. Together our data indicate that Inpp5e is a key regulator of cell polarity in the renal epithelia by inhibiting PtdIns(3,4,5)P3 and subsequently recruiting PtdIns(4,5)P2, Ezrin, F-actin and basal bodies to the apical membrane, and suggest a possible novel approach for treating human ciliopathies.