Previous studies from our laboratory have shown 1,25-dihydroxyvitamin D3 [1,25(OH)2D3] production by rat liver homogenates and a low affinity of the hepatic enzyme for 25-hydroxyvitamin D3. Because the liver microsomal vitamin D-25-hydroxylase is the main source of systemic 25(OH)D3, we examined the subcellular location and the kinetics of liver 1,25(OH)2D3 production. Unlike the renal 1 alpha-hydroxylase activity which was assayed simultaneously, 1,25(OH)2D3 synthesis was undetectable in rat liver mitochondria, whereas in microsomes, 1,25(OH)2D3 production followed typical Michaelis Menten kinetics with a Km for 25(OH)D3 of 13.4 microM and a Vmax of 109.8 pg/min per mg protein accounting for most of the 1,25(OH)2D3 synthesized by rat liver cytosol free homogenates. Thus, microsomes are the site for 1,25(OH)2D3 synthesis in the rat liver. This microsomal compartmentalization of the two major steps in the activation of vitamin D to 1,25(OH)2D3 suggests a role for the liver as an autocrine/paracrine organ for 1,25(OH)2D3.