A well-known lipase, Lip 3 of Candida rugosa, was purified to homogeneity from a commercial lipase preparation, using hydrophobic interaction and anion exchange chromatography. Lip 3, which has been reported to act on cholesteryl esters, was also found to be active on plant-derived steryl esters. Lip 3 had optimal activity at pH 5-7 and below 55 degreesC. It was able to hydrolyse steryl esters totally in a clear micellar aqueous solution. However, the action on a dispersed colloidal steryl ester solution was limited and only about half of the steryl esters were degraded. The degree of hydrolysis was not improved by addition of fresh enzyme. The composition of released fatty acids and sterols was, however, almost identical to that obtained by alkaline hydrolysis, showing that all the different steryl esters were hydrolysed equally and that none of the individual components were responsible for incomplete hydrolysis. Thus, it appeared that the physical state of the colloidal steryl ester dispersion limited the action of Lip 3. Wood resins contain both triglycerides and steryl esters among the hydrophobic components, which create problems in papermaking. The simultaneous enzymatic hydrolysis of triglycerides and steryl ester is therefore of considerable interest and Lip 3 is the first enzyme reported to act on both triglycerides and steryl esters.