The vanilloid receptor TRPV1, previously known as VR1, has been implicated in pain sensation under both physiological and pathological conditions. The channel is highly expressed in sensory ganglion neurons and is activated by a range of noxious stimuli including irritant chemicals, acids and heat. In order to understand the structural basis underlying this polymodal activation and the regulation by intracellular signaling pathways, we have investigated the functional roles of the cytoplasmic terminal of rat TRPV1. A mutant with the maximal truncation of the distal C-terminal encompassing the last 88 residues was constructed. Interestingly, this mutant exhibited a Ca2+-dependent functional loss - it was irresponsive to capsaicin in the presence of extracellular Ca2+, but fully functional otherwise. Further studies of this construct revealed that extracellular Ca2+ alone could activate the channel, and that the activation required PKC phosphorylation at S502, an event that was upregulated by external Ca2+ entry. We compared the truncation mutant with wild-type TRPV1 and demonstrated that it had a significantly increased sensitivity to PKC phosphorylation. These results suggest the distal C-terminal of TRPV1 can inhibit phosphorylation-induced potentiation of the wild-type channel. They also call into question some established functions of the distal C-terminal of TRPV1, including its roles in agonist binding and functional desensitization. We suggest that the functional loss of the truncation mutant, in the presence of extracellular Ca2+, was not due to disruption of agonist binding or gating, but rather to desensitization promoted by unstimulated extracellular Ca2+ entry.