Enzymatic activities have been identified which catalyze both the hydrolysis and synthesis of arachidonylethanolamide (anandamide). Anandamide was taken up by neuroblastoma and glioma cells in culture, but it did not accumulate since it was rapidly degraded by an amidase activity that resided mainly in the membrane fractions. This amidase activity was expressed in brain and the majority of cells and tissues tested. Phenylmethylsulfonyl fluoride (PMSF) was found to be a potent inhibitor of this amidase. A catalytic activity for the biosynthesis of anandamide from ethanolamine and arachidonic acid was readily apparent in incubations of rat brain homogenates. The stability of anandamide in serum and its rapid breakdown in cells and tissues are consistent with the observation that it is active when administered systemically, and its duration of action will be regulated by its rate of degradation in cells.