Purified bovine milk galactosyltransferase was combined with liposomes of different lipid composition. The activity was markedly affected by the nature of the lipid used. Thus phosphatidylcholine, phosphatidylethanolamine, and phosphatidylglycerol stimulated the activity, while phosphatidic acid and phosphatidylserine inhibited the activity of the transferase. Phosphatidylcholine, phosphatidylglycerol, and phosphatidic acid had identical fatty acid compositions, yet phosphatidylcholine and phosphatidylglycerol stimulated the activity while phosphatidic acid inhibited the activity. The effect on the enzyme was probably related to the nature of the head group since the inhibition by phosphatidic acid could be converted to stimulation by methylating the phosphatidic acid. The properties of several of the head groups is discussed. The physical state of the lipid was shown to affect the activity markedly. When the enzyme was combined with dimyristylphosphatidylcholine the activity was markedly stimulated when the lipid was in the liquid-crystalline state i.e., above the phase transition.