Ketoconazole (KC), an orally effective systemic antifungal agent, has been associated with symptomatic hepatotoxicity with an incidence as low as 1 in 2000. Studies from this laboratory have shown that in the mouse ketoconazole elicit a biphasic effect on drug metabolism and induced phospholipidosis. The pathogenesis of the latter, however, has never been established. Studies in mice demonstrated that ketoconazole administration induced phospholipid accumulation in the liver in a dose and time dependent fashion; and de-N-acetyl ketoconazole (DAKC), a major hepatic metabolite of KC was associated with this biochemical change. A comparative biochemical study following equimolar (0.47 nmol/kg p.o. x 7 days) administration of these two compounds indicated that hepatic phospholipids were elevated to a greater extent by DAKC treatment than by KC. Hepatic profiles of KC, DAKC, and other metabolites at 2, 7.5 and 24 h following single and multiple dosing regimens with either KC or DAKC indicated that KC was readily metabolized to DAKC whereas, DAKC appeared to be recalcitrant to metabolism and accumulated in the liver. In contrast to the biphasic effects of KC on hepatic enzyme activity observed previously following the administration of KC (enzyme inhibition as well as induction), the biological effects of DAKC were consistent with only an enzyme inhibitory effect: liver microsomal protein was not elevated; cytochrome P-450 was depressed; and ethylmorphine N-demethylase and benzphetamine N-demethylase were inhibited. Consequently the induction of phospholipidosis and the inhibition of drug metabolism associated with ketoconazole treatment were attributed to DAKC, whereas the inductive properties of KC were ascribed to the unchanged drug. The dramatic difference in the biological effects of these two compounds was attributed to differences in the orientation of these agents in lipid membranes. These results offer an explanation for the previously observed apparent inhibitory effects of KC on enzyme activities (Whitehouse et al. (1990b) Hepatic effects of ketoconazole in the male Swiss Webster mouse: temporal changes in drug metabolic parameters. Can. J. Physiol. Pharmacol., 68, 1136-1142) and suggest that DAKC may be the chemical entity responsible for the induction of phospholipidosis following ketoconazole administration.