The mechanism by which palmitic and oleic acids modify calcium sequestration by sarcoplasmic reticulum vesicles was investigated by examining the effects of these fatty acids on calcium-dependent ATPase activity, on the phosphoenzyme intermediates found during calcium sequestration reactions, and on passive membrane permeability to calcium. The calcium sequestered in the presence of these fatty acids was also characterized by determining the amount exchangeable with the extravesicular pool or released by the ionophore A23187. In the presence of 50 microM ATP, 18 microM palmitic acid enhanced and 18 microM oleic acid inhibited calcium sequestration, whereas both fatty acids stimulated ATPase activity. Neither fatty acid had significant effects on the amount or distribution of the phosphoenzyme formed during the calcium transport reaction. Palmitic acid stimulated calcium sequestration only when ATP was present. Oleic acid caused the release of a portion of the accumulated calcium during ATP-supported calcium sequestration and also enhanced the release observed in ATP-depleted reactions. A portion of the calcium sequestered in the presence of palmitic acid appears to be incorporated into a nonexchangeable and ionophore-insensitive calcium pool, although the latter was estimated to be considerably larger than the nonexchangeable pool. These data support the hypothesis that oleic acid inhibits calcium sequestration by increasing membrane permeability to calcium, whereas palmitic acid appears to stimulate calcium sequestration by interacting with a portion of the calcium within the vesicles to form a separate, poorly exchangeable calcium pool.