CDPdiacylglycerol:inositol transferase activity in rabbit lung tissue has been characterized and the optimum conditions for assaying this enzyme in vitro were determined. Rabbit lung tissue CDPdiacylglycerol:inositol transferase activity was found primarily in the microsomal fraction. The pH optimum of the enzyme activity was between 8.8 and 9.4, and the reaction was dependent on either Mn2+ or Mg2+. Detergents and Ca2+ inhibited the activity of the enzyme. The apparent Km values of the enzyme for CDPdioleoylglycerol and myoinositol were 0.18 mM and 0.10 mM, respectively. The reversibility of the reaction catalyzed by CDPdiacylglycerol:inositol transferase in microsomes prepared from rabbit lung tissue was demonstrated by the synthesis of [3H]CMPdiacylglycerol when [3H]CMP and phosphatidylinositol were present in the incubation mixture. The reverse reaction was characterized and its importance in the regulation of the acidic phospholipid composition of surfactant during lung development is discussed. The pH optimum for the reverse reaction was 6.2, and the reverse reaction was also dependent on Mn2+ or Mg2+. The apparent Km value of CDPdiacylglycerol:inositol transferase for CMP was found to be 2.8 mM.