During spermiogenesis, Drosophila melanogaster spermatids coordinate their elongation in interconnected cysts that become highly polarized, with nuclei localizing to one end and sperm tail growth occurring at the other. Remarkably little is known about the signals that drive spermatid polarity and elongation. Here we identify phosphoinositides as critical regulators of these processes. Reduction of plasma membrane phosphatidylinositol 4,5-bisphosphate (PIP(2)) by low-level expression of the PIP(2) phosphatase SigD or mutation of the PIP(2) biosynthetic enzyme Skittles (Sktl) results in dramatic defects in spermatid cysts, which become bipolar and fail to fully elongate. Defects in polarity are evident from the earliest stages of elongation, indicating that phosphoinositides are required for establishment of polarity. Sktl and PIP(2) localize to the growing end of the cysts together with the exocyst complex. Strikingly, the exocyst becomes completely delocalized when PIP(2) levels are reduced, and overexpression of Sktl restores exocyst localization and spermatid cyst polarity. Moreover, the exocyst is required for polarity, as partial loss of function of the exocyst subunit Sec8 results in bipolar cysts. Our data are consistent with a mechanism in which localized synthesis of PIP(2) recruits the exocyst to promote targeted membrane delivery and polarization of the elongating cysts.