Anandamide, an endogenous eicosanoid derivative (arachidonoylethanolamide), binds to the cannabinoid receptor, a member of the G protein-coupled superfamily. It also inhibits both adenylate cyclase and N-type calcium channel opening. The enzymatic synthesis of anandamide in bovine brain tissue was examined by incubating brain membranes with [14C]ethanolamine and arachidonic acid. Following incubation and extraction into toluene, a radioactive product was identified which had the same Rf value as authentic anandamide in several thin-layer chromatographic systems. When structurally similar fatty acid substrates were compared, arachidonic acid exhibited the lowest EC50 and the highest activity for enzymatic formation of the corresponding ethanolamides. The concentration-response curve of arachidonic acid exhibited a steep slope, and at higher concentrations arachidonate inhibited enzymatic activity. When brain homogenates were separated into subcellular fractions by sucrose density gradient centrifugation, anandamide synthase activity was highest in fractions enriched in synaptic vesicles, myelin, and microsomal and synaptosomal membranes. When several areas of brain were examined, anandamide synthase activity was found to be highest in the hippocampus, followed by the thalamus, cortex, and striatum, and lowest in the cerebellum, pons, and medulla. The ability of brain tissue to enzymatically synthesize anandamide and the existence of specific receptors for this eicosanoid suggest the presence of anandamide-containing (anandaergic) neurons.