Efficient delivery of hydrophobic water-insoluble substrates and cofactors to membrane-bound enzymes is a recurring problem which has impeded kinetic analyses. Kinetic analysis of the Escherichia coli sn-1,2-diacylglycerol kinase, an extremely hydrophobic integral membrane protein of 122 residues, was facilitated by the development of a mixed micellar assay. beta-Octyl glucoside micelles quantitatively solubilized diacylglycerol kinase from membranes of strains which overproduced the enzyme up to 250-fold and provided an effective method to disperse and deliver the hydrophobic water-insoluble substrate, sn-1,2-dioleoyglycerol. Diacylglycerol kinase was active in mixed micelles containing octyl glucoside and dioleoyglycerol. Several phospholipids stimulated activity up to 6-fold, suggesting a cofactor function. Activation by phospholipids was not stereospecific and was mimicked partially by fatty acids. Half-maximal activation was observed at 1 mol % cardiolipin, suggesting that a small number of phospholipids are sufficient to activate the enzyme. Activity was dependent on the mole fractions of dioleoylglycerol and phospholipid in the mixed micelles, but independent of micelle number. Several lines of evidence indicated that the transfer of diacylglycerol between micelles was much more rapid than its utilization by the enzyme. Diacylglycerol kinase exhibited Michaelis-Menten kinetics with respect to diacylglycerol and MgATP. A second Mg2+ ion (in addition to MgATP) was required for activity. When Mg2+ was excluded from the assay, Mn2+, Zn2+, Cd2+, and Co2+ supported activity to lesser extents. These data establish a suitable system for in-depth kinetic analysis of the E. coli diacylglycerol kinase and its phospholipid cofactor requirements.