(R)-3-Hydroxybutyrate dehydrogenase (BDH) is a lipid-requiring mitochondrial enzyme with a specific requirement of phosphatidylcholine (PC) for function. PC is an allosteric activator that enhances NAD(H) binding to BDH. The enzyme serves as a paradigm to study specific lipid-protein interactions in membranes. Analysis of the primary sequence of BDH, as determined by molecular cloning, predicts that lipid binding and substrate specificity are contributed by the C-terminal third of the protein [Marks, A. R., McIntyre, J. O., Duncan, T. M., Erdjument-Bromage, H., Tempst, P., & Fleischer, S. (1992) J. Biol. Chem. 267, 15459-15463]. The mature form of human heart BDH has now been expressed in catalytically active form in insect cells (Sf9, Spodoptera frugiperda) transfected with BDH-cDNA in baculovirus. Endogenous PC in the insect cells fulfills the lipid requirement for the expressed BDH since enzymatic activity is lost upon digestion with phospholipase A2 and restored selectively by reconstitution with PC vesicles. The K(m)s for NAD+ and (R)-3-hydroxybutyrate (R-HOB) of expressed BDH are similar to those for bovine heart or rat liver BDH in mitochondria. Replacing Cys242 (the only cysteine in the C-terminal domain) with serine by site-directed mutagenesis resulted in a 10-fold increase in K(m) for R-HOB with no change in the K(m) for NAD+, indicating a role for Cys242 in substrate binding. Carboxypeptidase cleavage studies had indicated a requirement of the C-terminal for catalysis and a role in lipid binding [Adami, P., Duncan, T. M., McIntyre, J. O., Carter, C. E., Fu, C., Melin, M., Latruffe, N., & Fleischer, S. (1993) Biochem J. 292, 863-872]. We now show that deletion of twelve C-terminal amino acids to form a truncated BDH mutant results in loss of enzymic function. The expression in Sf 9 cells of the constitutively active full-length mature form of human heart BDH and the first expression and characterization of BDH mutants validate this system for structure-function studies of BDH.