To determine whether an inhibitor of extrathyroidal conversion (IEC) of T4 to T3 is present in sera of patients with nonthyroidal illness (NTI), we incubated rat liver homogenate (approximately 4 mg protein) with T4 (2.5 microM) and dithiothreitol (5 mM) in the presence of evaporated diethyl ether extracts of normal or NTI sera. The T3 produced was quantified by RIA. Extracts of NTI sera caused dose-dependent inhibition in the conversion of T4 to T3. T3 produced in the presence of 20 NTI sera (1.0 mleq aliquots) was 76 +/- 5.5% (mean +/- SE; range, 18-116) that of normal sera (100 +/- 4.1% n = 10; P less than 0.01); it was more than 2 SD below the normal mean in eight patients. Inhibition of T3 production by NTI sera was correlated highly significantly with the activity of a thyroid hormone-binding inhibitor (THBI) also present in ether extracts of these sera (r = 0.82; n = 20; P less than 0.001). Since THBI may be a lipid, we studied the effect of lipids on hepatic conversion of T4 to T3. Several fatty acids were potent inhibitors of the conversion in vitro. Doses (in micromoles) causing 50% inhibition in different experiments varied between 0.2-0.52 for arachidonic acid, 0.3-0.56 for linolenic acid, 0.38-0.40 for linoleic acid, and 0.8-0.9 for oleic acid. Other lipids had less or no inhibitory activity. The inhibition of hepatic T4 5'-monodeiodination by arachidonic acid was competitive in nature (Ki, approximately 0.11 mM). Pretreatment of rat liver with phospholipase A2 for 10-60 min led to a progressive reduction in the conversion of T4 to T3. Moreover, the evaporated ether extract of phospholipase A2-treated rat liver homogenate reduced T4 to T3 conversion by untreated rat liver homogenate. There was a significant correlation between serum concentrations of free fatty acids and IEC activity in NTI sera (r = 0.74; n = 10; P less than 0.02). The various data suggest that 1) many NTI sera contain a potent IEC; 2) some fatty acids are potent IECs; 3) like THBI, IEC may be a lipid moiety; and 4) activation of tissue phospholipases may contribute importantly to reduced extrathyroidal T3 production in NTI, presumably by releasing inhibitory fatty acids that act locally first and more generally after their release into the circulation.