A second form of the enzyme acyl-CoA:cholesterol acyltransferase, ACAT2, has been identified. To explore the hypothesis that the two ACAT enzymes have separate functions, the membrane topologies of ACAT1 and ACAT2 were examined. A glycosylation reporter and FLAG epitope tag sequence was appended to a series of ACAT cDNAs truncated after each predicted transmembrane domain. Fusion constructs were assembled into microsomal membranes, in vitro, and topologies were determined based on glycosylation site use and accessibility to exogenous protease. The accessibility of the C-terminal FLAG epitope in constructs was determined by immunofluorescence microscopy of permeabilized transfected cells. Both ACAT1 and ACAT2 span the membrane five times with their N termini in the cytosol and C termini in the ER lumen. The fourth transmembrane domain is located in a different region for each protein, placing the putative active site ACAT1 serine (Ser(269)) in the cytosol and the analogous residue in ACAT2 (Ser(249)) in the ER lumen. Mutation of these serines inactivated the ACAT enzymes. The outcome is consistent with the hypothesis that cholesterol ester formation by ACAT2 may be coupled to lipoprotein particle assembly and secretion, whereas ACAT1 may function primarily to maintain the balance of free and esterified cholesterol intracellularly.