Aldehyde dehydrogenase possessing an esterolytic activity has been purified to homogeneity from rat liver mitochondria. Steady-state kinetic studies suggest that the esterolytic reaction follows an ordered uni-bi mechanism. The formation of an acyl enzyme intermediate via nucleophilic catalysis during the esterase reaction is established kinetically using a series of substrates with varying acyl carbon chains and substituted phenyl octanoates with varying electronic effects. The enzyme was reconstituted into phospholipid vesicles. A significant increase in binding capacity is observed when the enzyme is encapsulated into liposomes containing 4% diphosphatidylglycerol.