We have investigated the characteristics and properties of cholesterol esterase (CEase) in the rat adrenal to clarify the mechanism of synthesis of free cholesterol from esterified cholesterol. CEase activity was estimated using substrate vesicles which were sonicated mixtures of cholesteryl oleate and phosphatidylcholine (PC). CEase showed two optima at around pH 4.5 and pH 8.25. The acid CEase was found mainly in the lysosomal fraction, and the alkaline CEase was found mainly in the microsomal fraction. Both acid and alkaline CEase activities were markedly enhanced by increasing the concentration of PC, but not by phospholipids. The activities were not increased by the addition of cAMP, ATP, and MgCl2, when the molar ratio of cholesteryl oleate to PC was 1:0.2, but were increased when the molar ratio was 1:2. Thus, it is suggested that free cholesterol for steroidogenesis may be supplied by two different organelles (lysosome and microsome), and that the composition of the substrate complex, such as the ratio of esterified cholesterol to phospholipids, may play a crucial role in the regulation of adrenal CEase. Increases in both acid and alkaline CEase activities were observed in adrenal homogenates prepared from hypophysectomized rats treated with an iv injection of ACTH when the molar ratio of cholesteryl oleate to PC used as a substrate vesicle was 1:0.2, but not when the ratio was 1:2. Therefore, the present observation indicate that activation of CEase by ACTH is dependent on the substrate state, especially that of the cholesterol ester droplet in vivo.