Using polymerase chain reaction (PCR), we have isolated a cDNA that encodes a rat liver carboxylesterase. This novel enzyme, designated hydrolase C, is structurally very similar to hydrolase B, a microsomal carboxylesterase expressed in rat liver and kidney. Hydrolase B and C are 96% identical in nucleotide sequence and 93% identical in deduced amino acid sequence. Both enzymes have an 18-amino-acid signal peptide at the N-terminus. The C-terminus of hydrolase B and C contains an HXEL consensus sequence for retaining proteins in the endoplasmic reticulum. As expected, when the cDNA encoding hydrolase C was expressed in a baculovirus/Sf21 cell system, the recombinant enzyme was localized in the endoplasmic reticulum. Hydrolase B and C both have putative N-linked glycosylation sites at Asn1 and Asn61. The active site of hydrolase B and C appears to be composed of a nucleophile, Ser203, a basic residue, His448, and an acidic residue, either Asp97 or Glu228. Based on cloning experiments, restriction endonuclease mapping and Northern blotting, hydrolase B is expressed in both rat liver and kidney, whereas hydrolase C is expressed predominantly, perhaps exclusively, in liver. When expressed in Escherichia coli, hydrolase C was catalytically inactive and unstable, but when expressed in the baculovirus/Sf21 cell system hydrolase C it was stable and catalytically active toward 1-naphthylacetate and esters of para-nitrophenol. Hydrolase C is the fourth member of the rat carboxylesterase family to be cloned and sequenced. In terms of nucleotide and deduced amino acid sequence, hydrolase C is highly similar to hydrolase B, but differs from hydrolase B in terms of its catalytic activity and tissue distribution. Recombinant hydrolase C has properties similar to those described for esterase RL2, which was purified from rat liver microsomes by Hosokawa et al. (Arch. Biochem. Biophys. 277, 219-227, 1990), although additional studies will be required to establish conclusively the identity of this enzyme. The high degree of sequence identity (96%) between hydrolase B and C, particularly in the 3' untranslated region, suggests that the genes encoding these two carboxylesterases evolved by duplication and divergence of a common ancestral gene.