We studied malabsorption of fat in neonates who were fed either a lard-modified formula (n = 22, gestational age, 33.6 +/- 3.9 wk) or an unmodified formula (n = 14, gestational age, 34.1 +/- 3.7 wk). In both groups fecal lipid consisted almost completely (greater than 90%) of free fatty acids, whose composition was highly correlated with the corresponding formula's fatty acid composition [r = 0.96 (lard modified) and r = 0.99 (standard)]. Both groups had similar relative amounts and compositions of fecal cholesterol esters and triglycerides. Plasma and, to a lesser extent, erythrocyte membrane long-chain-fatty-acid compositions correlated with those of the corresponding formulas. We suggest that the extensive intestinal hydrolysis and limited absorption of dietary lipids is, at least partly, due to lipolysis in the colon. Appearance of triglycerides in the colon may be due to a rapid small-intestinal passage in relation to small-intestinal lipolysis.