A gene encoding a sterol ester-synthesizing enzyme was identified in Arabidopsis. The cDNA of the Arabidopsis gene At1g04010 (AtPSAT) was overexpressed in Arabidopsis behind the cauliflower mosaic virus 35S promoter. Microsomal membranes from the leaves of overexpresser lines catalyzed the transacylation of acyl groups from phosphatidylethanolamine to sterols. This activity correlated with the expression level of the AtPSAT gene, thus demonstrating that this gene encodes a phospholipid:sterol acyltransferase (PSAT). Properties of the AtPSAT were examined in microsomal fractions from the tissues of an overexpresser. The enzyme did not utilize neutral lipids, had the highest activity with phosphatidylethanolamine, had a 5-fold preference for the sn-2 position, and utilized both saturated and unsaturated fatty acids. Various sterols and sterol intermediates, including triterpenic precursors, were acylated by the PSAT, whereas other triterpenes were not. Sterol selectivity studies showed that the enzyme is activated by end product sterols and that sterol intermediates are preferentially acylated by the activated enzyme. This indicates that PSAT both regulates the pool of free sterols as well as limits the amount of free sterol intermediates in the membranes. Two T-DNA insertion mutants in the AtPSAT gene, with strongly reduced (but still measurable) levels of sterol esters in their tissues, had no detectable PSAT activity in the microsomal fractions, suggesting that Arabidopsis possess other enzyme(s) capable of acylating sterols. The AtPSAT is the only intracellular enzyme found so far that catalyzes an acyl-CoA-independent sterol ester formation. Thus, PSAT has a similar physiological function in plant cells as the unrelated acyl-CoA:sterol acyltransferase has in animal cells.