A soil Arthrobacter species isolated from an Oregon soil was capable of transforming n-hexadecane to a series of ketonic products, the 2-,3-, and 4-hexadecanones, with evidence for accumulation of 2- and 3-hexadecanols as oxidative intermediates when yeast extract or peptone was used as a growth substrate. The accumulation and participation of internal alcohols in this type of hydrocarbon transformation has not been previously reported. In the absence of yeast extract or peptone, growth from low-level inocula was not observed when n-hexadecane or two oxidation products, 2-hexadecanol and 3-hexadecanone, were used as substrates. However, washed resting cell suspensions of the organism transformed 2-hexadecanol, or a mixture of 2-,3-, and 4-hexadecanols, to the corresponding ketones without lag, indicating the possible constitutive nature of the alcohol dehydrogenase enzyme(s) carrying out this reaction. The addition of glucose to these resting cells stimulated transformation of n-hexadecane to alcoholic and ketonic oxidation products. Formation of isomeric internal alcohols appears to be a limiting step in ketone formation by this Arthrobacter isolate.