The effect of lipids singly and in combination on the ability of galactosyltransferase to transfer galactose to N-acetyl-D-glucosamine-forming lactosamine and to glucose forming lactose has been studied. Lecithins, as egg phosphatidylcholine (PC), or saturated as dimyristoylphosphatidylcholine and dipalmitoylphosphatidylcholine stimulated the activity of the enzyme to form lactosamine to different extents. Egg PC produced the greatest stimulation of all the lecithins tested. Egg phosphatidic acid (PA) inhibited the activity of the enzyme at very low concentrations of lipid. In mixed vesicles of gel phase or liquid crystalline phase lecithins and egg PA, the acidic lipid was able to overcome the stimulation produced by the lecithins. The dominant effect of the head group was demonstrated by the effects of gel phase dimyristoylphosphatidic acid (DMPA). In mixtures with PC, DMPA also was able to inhibit the enzyme for lactosamine synthesis but higher concentrations of the gel phase DMPA were required for inhibition compared to the liquid crystalline PA. Although the head group appeared to dominate the inhibition, the nature of the acyl chains of the lipid played a secondary role at least. Other acid lipids, phosphatidylserine (PS) and phosphatidylinositol (PI) were much less effective than PA. PS alone inhibited the activity of the enzyme. However, in mixed lipids (PS and egg PC), PS was unable to reverse the stimulation produced by PC while PC was able to reverse the inhibition produced by PS. PI alone had no effect on the enzyme activity. In mixtures with egg PC, the stimulating effect of PC was dominant. In the lactose synthetase reaction, the effect of lipids was similar to that of the lactosamine synthetase, i.e. PC stimulated and PA inhibited activity and in mixtures of PC and PA, the inhibitory effect of PA was dominant.