Observations of thermal ions in Saturn's inner magnetosphere suggest distributed local sources rather than diffusive mass loading from a source located further out. We suggest that the plasma is produced and maintained mainly by ''self-sputtering'' of E ring dust. Sputtered particles are ''picked up'' by the planetary magnetospheric field and accelerated to corotation energies (of the order of 8 eV/amu). The sputter yield for oxygen on ice at, for example, 120 eV is ~5, which implies that an avalanche of self-sputtering occurs. The plasma density is built up until it is balanced by local losses, presumably pitch angle scattering into the loss cone and absorption in the planet's ionosphere. The plasma density determines the distribution of dust in the E ring through plasma drag. Thus a feedback mechanism between the plasma and the E ring dust is established. The model accounts for the principal plasma observations and simultaneously the radial optical depth profile of the E ring. ¿ American Geophysical Union 1993