Subcellular fractionation studies of rat liver localized the activity of palmitoyl-L-carnitine hydrolase to the microsomal fraction whereas palmitoyl-CoA hydrolase activity was found both in the microsomal fraction and in mitochrondria. An unusual biphasic sataration curve for palmitoyl-CoA was observed when intact mitochondrial hydrolase activity. Disruption of the mitochondrial structure doubled the palmitoyl-CoA hydrolysis. Discontinuous sucrose gradient centrifugation and digitonin fractionation of rat liver mitochondria demonstrated that a palmitoyl-CoA hydrolase was associated with the matrix fraction. Pure matrix and microsomal fractions showed that the two hydrolase activities were differently affected by the presence of divalent cations. Both the specific activity and the saturation concentration of palmitoyl-CoA were higher for the microsomal enzyme than for the matrix-associated enzyme.