NADPH-cytochrome P-450 reductase and two purified isozymes of cytochrome P-450 have been incorporated into phospholipid vesicles by a cholate dialysis technique. The enzyme system reconstituted in this manner was catalytically active. The observed kinetics for substrate oxidation indicated that both enzymes were associated with the liposomal membranes, and were not simply entrapped in the interior of the vesicle. The N-demethylation of benzphetamine was measured in order to determine the effect of variations in the mole ratio between the two enzymes and between the lipid and the total enzyme on the observed steady-state kinetics. In addition, the kinetic isotope effects for the O-deethylation of 7-ethoxycoumarin were measured in order to compare these parameters to those previously observed in a reconstituted system [G. T. Miwa, and A. Y. H. Lu (1981) Arch. Biochem. Biophys. 211, 454-458]. The results were all consistent with the association of the two proteins by lateral diffusion in the vesicle membrane. Moreover, the observed reduction in catalytic activity, as the enzymes were diluted in the vesicle membrane, can only be explained by the formation of a transient P-450-reductase complex, and not by the existence of a stable complex between the two proteins. These results provide compelling evidence for a mass action model for the interaction of these two enzymes in liposomal membranes.