The effect of psychosine on the rate of respiration at different segments of the electron transport chain, respiratory control ratio and the efficiency of phosphorylation was studied. The transfer of electrons through site I, site II and site III was studied independently. The transfer through site I and site III was inhibited by psychosine, whereas the transfer through site II was not inhibited. Cardiolipin, which is essential for the electron transfer through site I and III, was implicated to be responsible for the inhibition of electron transfer by psychosine. Electron carriers of site II are not sensitive to cardiolipin, so psychosine could not inhibit the electron transfer through this site. The ADP/O ratio and respiratory control ratio were inhibited by psychosine showing that it has an uncoupler like effect. Mitochondria isolated from rat liver, kidney and brain behaved essentially the same way in their response to psychosine. Cytochrome c oxidase was significantly inhibited by psychosine and the degree of inhibition was almost same in mitochondria and sub mitochondrial particles. The preence of outer membrane in mitochondria did not make any difference with respect to the action of psychosine on electron transport chain. Psychosine interacts at site I and site III and a change in the lipid environment of the membrane is responsible for the mitochondrial dysfunctions induced by psychosine. This represents a possible mechanism for the destruction of cells in Gaucher's and Krabbe's disease.