2-Hydroxyfatty acids, constituents of brain cerebrosides and sulfatides, were previously reported to be degraded by an alpha-oxidation system, generating fatty acids shortened by one carbon atom. In the current study we used labeled and unlabeled 2-hydroxyoctadecanoic acid to reinvestigate the degradation of this class of lipids. Both in intact and broken cell systems formate was identified as a main reaction product. Furthermore, the generation of an n-1 aldehyde was demonstrated. In permeabilized rat hepatocytes and liver homogenates, studies on cofactor requirements revealed a dependence on ATP, CoA, Mg(2+), thiamine pyrophosphate, and NAD(+). Together with subcellular fractionation data and studies on recombinant enzymes, this led to the following picture. In a first step, the 2-hydroxyfatty acid is activated to an acyl-CoA; subsequently, the 2-hydroxy fatty acyl-CoA is cleaved by 2-hydroxyphytanoyl-CoA lyase, to formyl-CoA and an n-1 aldehyde. The severe inhibition of formate generation by oxythiamin treatment of intact fibroblasts indicates that cleavage through the thiamine pyrophosphate-dependent 2-hydroxyphytanoyl-CoA lyase is the main pathway for the degradation of 2-hydroxyfatty acids. The latter protein was initially characterized as an essential enzyme in the peroxisomal alpha-oxidation of 3-methyl-branched fatty acids such as phytanic acid. Our findings point to a new role for peroxisomes in mammals, i.e. the breakdown of 2-hydroxyfatty acids, at least the long chain 2-hydroxyfatty acids. Most likely, the more abundant very long chain 2-hydroxyfatty acids are degraded in a similar manner.