Oral terbinafine treatment for superficial fungal infections of toe and fingernails is associated with a low incidence (1:45000) of hepatobiliary dysfunction. Due to the rare and unpredictable nature of this adverse drug reaction, the mechanism of toxicity has been hypothesized to be either an uncommon immunological or metabolically mediated effect. However, there is little evidence to support either mechanism, and toxic metabolites of terbinafine have not been identified. We incubated terbinafine with both rat and human liver microsomal protein in the presence of GSH and were able to trap an allylic aldehyde, 7,7-dimethylhept-2-ene-4-ynal (TBF-A), which corresponds to the N-dealkylation product of terbinafine. TBF-A was also prepared synthetically and reacted with excess GSH to yield conjugates with HPLC retention times and mass spectra identical to those generated in the microsomal incubations. The major GSH conjugate, characterized by (1)H NMR, corresponds to addition of GSH in a 1,6-Michael fashion. There remains a second electrophilic site on this metabolite, which can bind either to a second molecule of GSH or to cellular proteins via a 1,4-Michael addition mechanism. Moreover, we demonstrated that the formation of the GSH conjugates was reversible. We speculate that this allylic aldehyde metabolite, formed by liver enzymes and conjugated with GSH, would be transported across the canalicular membrane of hepatocytes and concentrated in the bile. The mono-GSH conjugate, which is still reactive, could bind to hepatobiliary proteins and lead to direct toxicity. Alternatively, it could modify canalicular proteins and lead to an immune-mediated reaction causing cholestatic dysfunction.