The Clara cell of the bronchiole is unique to the lung; the cell's function is not clear. The localization of the lipid-hydrolase enzymes phospholipase, lysophospholipase, and lipase was examined ultrastructurally in the Clara cell of the rat bronchiole. The secretory granules of the Clara cell showed a strong reaction of lysophospholipase and a weak reaction of lipase. Phospholipase activity was not detected intracellularly. These findings suggest that the Clara cell secretes lipase-phospholipase into the bronchiolar lumen, thus catabolizing the pulmonary surfactant phospholipids.