These studies were undertaken to further characterize and explain the differences in hepatic fatty acid metabolism between lean and obese Zucker rats. It was shown that the rate of palmitate or octanoate oxidation and the inhibition of palmitate oxidation by malonyl CoA in mitochondria isolated from lean and obese Zucker rats were similar. Cytochrome oxidase activity was similar in lean and obese rat livers. It was found that the addition of cytosol from the obese rat liver inhibited palmitate oxidation by 20-30% in mitochondria isolated from lean or obese rat livers and thus reproduced the conditions observed in the intact cell. Increased concentrations of metabolites such as malonyl CoA and glycerophosphate in the liver of the obese rat are likely contributors to this inhibitory effect. These results are extrapolated to the intact cell and suggest that decreased hepatic fatty acid oxidation in the obese rat can be accounted for by cytosolic influences on the mitochondria. The decreased rate of fatty acid oxidation observed in the intact hepatocyte or perfused liver cannot be explained by a defect in the capacity of mitochondria to oxidize substrate or by a decrease in mitochondrial number in the obese rat liver.