Mutations in cause progressive familial intrahepatic cholestasis, with symptoms including pruritus, pancreatitis, fat malabsorption, intestinal inflammation, and failure to thrive. High-throughput studies showed interconnection between ATP8B1 and phosphoinositide (PIPs), but the mechanism linking ATP8B1, lipid metabolism, and inflammation remains unclear. mouse model, unbiased RNAseq, high-resolution-stimulation emission depltion (STED)-microscopy, and Crispr-Cas9 generated knockouts in hepatocytes/monocytes/macrophages were used to determine role of ATP8B1 in phosphatidylinositol,4-5-bisphosphate (PIP2) trafficking and inflammation. Human ATP8B1, purified from Sf9 insect cells and reconstituted in proteoliposomes, was used to test cell-free PIP2 flip. Various in-vitro techniques were used for testing direct interaction between PIP2 and ATP8B1. ATP8B1 maintains PIP2 at the inner leaflet of plasma membrane (PM). ATP8B1 flips PIP2 in cells, without altering flip of PE or bulk-endocytosis. ATP8b1 flips PIP2 in a cell-free system. ATP8B1 deletion promotes bile-salt-mediated cholesterol extraction from hepatocytes in a PIP2-dependent manner. PIP2 directly binds to the P-loop of ATP8B1. Unbiased RNAseq showed upregulation of inflammatory cytokines in ATP8b1 immune cells. monocytes/macrophages showed aberrant lipopolysaccharide (LPS)-induced cleavage of GSDMD, formation of GSDMD pores, and interleukin-1beta (IL1β) release. Inflammation-resolving efferocytosis was impaired in macrophages. Biophysical properties of PM were altered in cells, with the mechanism being disrupted localization of PIP2. mice exposed to LPS showed higher plasma IL1β and lower survival rates vs. WT mice. ATP8B1 maintains PIP2 at the inner leaflet of PM. ATP8b1 directly flips and binds PIP2. ATP8B1 regulates LPS-induced GsdmD cleavage, formation of GsdmD pores, IL1β release, and mortality in mice.