After PIP2 has been converted into IP3 and DAG by phospholipase C (PLC), some of the IP3 opens calcium channels in the endoplasmic reticulum and calcium ions can enter the cytoplasm. However, it is unclear to me how this IP3 cascade is terminated. Is IP3 somehow degraded, do high calium concentrations result in closure of the calcium channels or is there some other mechanism?
IP3 is indeed degraded, this is done by a specific phosphatase which is called "Phosphoinositide 5-phosphatase (INPP5A)". It catalyzes the reaction in the following way:
1-phosphatidyl-1D-myo-inositol 4,5-bisphosphate + H2O $⇌$ 1-phosphatidyl-1D-myo-inositol 4-phosphate + phosphate
The enzyme cuts of the 5'-Phosphate group and leaves 1,4-Inositolphosphate, which is subsequently recycled. The schematics looks like this in the left side (figure 1 from the reference):
The IP3-DAG Pathway is triggered by an external stimulus that causes the conversion of PIP2 to IP3. When the stimulus is absent, the pathway does not function.
For example, TRH (Thyroptin Releasing Hormone) causes the IP3-DAG Pathway to occur in the cells in the Anterior Pituitary causing them to secrete TSH (Thyroid Stimulating Hormone) to the Thyroid Gland. When the Hypothalamus stops sending TRH, then the IP3-DAG Pathway in the TSH-secreting cells stops so TSH is not secreted.
Note: I am in high school right now so I may not have adequate experience in Cytology to answer this question. However, I tried my best! Hope this helps :))