Fatty acid ethyl esters have been detected in high concentrations in organs commonly damaged by alcohol abuse and are regarded as being important non-oxidative metabolites of ethanol. The formation of fatty acid ethyl esters (FAEEs) has been ascribed to two enzymic activities, acyl-CoA : ethanol O-acyltransferase (AEAT) and FAEE synthase. In the present study we determined AEAT and FAEE synthase activities in isolated rat liver microsomes and further characterized the microsomal AEAT activity in more detail. The determined AEAT and FAEE synthase activities were found to be similar (about 1.7 nmol.min-1.mg-1). However, the AEAT activity was increased about sixfold by the addition of 250 microm bis-(4-nitrophenyl) phosphate (a serine esterase inhibitor) to the incubation whereas FAEE synthase activity was completely inhibited. p-Hydroxymercuribenzoic acid (a cysteine-reacting compound) also stimulated AEAT activity (about fourfold) but had no effect on FAEE synthase activity. The effects of the inhibitors suggest that the formation of FAEEs by AEAT was severely counteracted by enzymic hydrolysis of the substrate (acyl-CoA) and to a lesser extent the product by serine esterases. dl-Melinamide, a hypocholesterolaemic drug, was found to be a very potent inhibitor of AEAT activity with an IC50 value of about 2.5 microm. Furthermore, we compared the activities of two purified microsomal carboxylesterases, ES-4 and ES-10, and identified ES-4 as the enzyme responsible for hydrolysis of FAEEs. The two carboxyesterases were also tested for FAEE synthase activity, but neither had any detectable activity. Esterase ES-4 was found to have some AEAT activity, but it was low. When measured under optimal conditions without competing hydrolysis the capacity of AEAT is thus considerably higher than FAEE synthase and the results are consistent with an important role for AEAT in the formation of ethyl esters. As the ratio acyl-CoA/non-esterified fatty acids is high under normal conditions, AEAT is probably the most important enzyme in fatty acid ethyl ester formation.