The soluble P450 isolated from Bacillus megaterium (the product of the CYP 102 gene) (P450BM-3) is a catalytically self-sufficient fatty acid hydroxylase which converts lauric, myristic, and palmitic acids to omega-1, omega-2, and omega-3 hydroxy analogs. The percentage distribution of the regioisomers depends on the substrate chain length. Lauric and myristic acids were preferentially metabolized to their omega-1 hydroxy counterparts while no hydroxylation occurred when capric acid was used as the substrate. Palmitic acid, when present at concentrations greater than the concentration of oxygen in the reaction medium (greater than 250 microM), was hydroxylated to its omega-1, omega-2, and omega-3 hydroxy analogs, with the percentage distribution of the regioisomers being 21:44:35, respectively. No omega hydroxylation of any of the fatty acids was detected. When the concentration of palmitic acid was less than the concentration of oxygen in the reaction mixture, it was noted that a number of additional products were formed. Under these conditions, unlike lauric and myristic acids, it was observed that palmitic acid was first converted to its monohydroxy isomers which were subsequently metabolized to a mixture of 14-ketohexadecanoic, 15-ketohexadecanoic, 13-hydroxy-14-ketohexadecanoic, 14-hydroxy-15-ketohexadecanoic, and 13,14-dihydroxyhexadecanoic acids with a relative distribution of 8:2:40:30:20, respectively. Thus, P450BM-3 is able not only to monohydroxylate a variety of fatty acids but also to further metabolize some of these primary metabolites to secondary and tertiary products. The present paper characterizes the products formed during the sequential hydroxylation of palmitic acid and proposes reaction pathways to explain these results.