Using a transformed human embryo retinal cell line (Ad 2 E1A + N-ras HER 313A), which expresses activated N-ras p21 at a high level, we have examined various properties of the protein. Immunoprecipitated p21 has covalently bound lipid attached to it through an alkali-labile thioester bond. This incorporation of fatty acid into the protein proceeds in vitro and probably in vivo via a palmitoyl-CoA intermediate and is catalysed by a crude microsomal preparation. A novel purification procedure has been developed for the protein based on its solubility in high concentrations of ethanol. Residual protein impurities were removed by gel filtration in the presence of detergent. Using a membrane preparation from Ad 2 E1A + N-ras HER 313A cells, we have shown that N-ras p21 is firmly anchored in the cell membrane and is not removed by extraction with salts, chelating agents or reducing agents, but is only solubilised by detergents at high concentrations. Exposure of cell membrane preparations and purified N-ras p21 to proteolytic enzymes gives rise to similar degradation patterns. Based on these observations and the known amino acid sequence of p21, it is concluded that attachment to the cell membrane is through the lipid at the C-terminus and not through the incorporation of the polypeptide chain into the lipid bilayer. These results are discussed in relation to the hypothesis that the mode of action of p21 is analogous to that of G proteins.