A partially purified preparation of the heat-stable enterotoxin of Escherichia coli caused a rapid and persistent increase in electric potential difference and short-circuit current when added in vitro to the luminal surface of isolated rabbit ileal mucosa. As little as 1 ng/ml produced an easily detectable response. Under short-circuit condition, the enterotoxin abolished net Cl- absorption; this change was half that produced by theophylline, which stimulated net secretion. The enterotoxin did not change cyclic AMP concentration but caused large and persistent increases in cyclic GMP concentration. The electrical and nucleotide responses exhibited similar and unusually broad concentration-dependences and maximal effects could not be demonstrated. Theophylline elevated cyclic GMP concentration 3-fold both in the presence and absense of the enterotoxin, suggesting no effect of the toxin on cyclic GMP phosphodiesterase. Guanylate cyclase [GTP pyrophosphatelyase(cyclizing); EC 184.108.40.206] activity in a crude membrane fraction from intestinal epithelial cells was stimulated 7-fold by the enterotoxin. These results suggest that guanylate cyclase stimulation is the basis for the toxin's diarrheagenic effect.