In serum, human paraoxonase/arylesterase (PON1) is found exclusively associated with high density lipoprotein (HDL) and contributes to its antiatherogenic properties by inhibiting low density lipoprotein (LDL) oxidation. Difficulties in purifying PON1 from apolipoprotein A-I (apoA-I) suggested that PON1's association with HDL may occur through a direct binding between these 2 proteins. An unusual property of PON1 is that the mature protein retains its hydrophobic N-terminal signal sequence. By expressing in vitro a mutant PON1 with a cleavable N-terminus, we demonstrate that PON1 associates with lipoproteins through its N-terminus by binding phospholipids directly rather than binding apoA-I. Nonetheless, apoA-I stabilized arylesterase activity more than did phospholipid alone, apoA-II, or apoE. Consequently, we studied the role of apoA-I in PON1 expression and HDL association in mice genetically deficient in apoA-I. Though present in HDL fractions at decreased levels, PON1 arylesterase activity was less stable than in control mice. Furthermore, PON1 could be competitively removed from HDL by phospholipids, suggesting that PON1's retained N-terminal peptide allows transfer of the enzyme between phospholipid surfaces. Thus, our data suggest that PON1 is stabilized by apoA-I, and its binding to HDL and physiological distribution are dependent on the direct binding of the retained hydrophobic N-terminus to phospholipids optimally presented in association with apoA-I.