Phosphatidate phosphohydrolase (PAPase) is a key enzyme involved in glycerolipid synthesis where it converts phosphatidic acid to diacylglycerol. Previous studies performed in lung have demonstrated the existence of 2 different forms of PAPases, namely PAP-1 and PAP-2. The former pulmonary Mg+2-dependent enzyme is N-ethylmaleimide (NEM)-sensitive, heat labile, and is involved in phospholipid biosynthesis. However, the function of the latter lung isozyme is unknown. PAP-2 activity was selectively assayed using NEM in the absence of Mg+2. Studies employing this assay and adult rat lung microsomal preparations demonstrated that PAP-2 activity was inhibited by amphiphilic amines, sphingoid bases, products of the PAP-2 reaction (monoacylglycerol [MAG] and diacylglycerol [DAG]), and substrate analogs such as lysophosphatidic acid (lyso-PA), ceramide-1-phosphate, and to a lesser extent, sphingosine-1-phosphate. Purified lung plasma membranes, prepared using discontinuous sucrose and Percoll gradients, showed that PAP-2 activity was enriched 6.9 +/- 1.6-fold over the whole homogenate and was between the enrichment for plasma membrane markers, 5'-nucleotidase (14.7 +/- 0.3) and Na+, K(+)-ATPase (4.0 +/- 0.2). Both phosphatidic acid and lysophosphatidic acid were good substrates for PAP-2 activity in this purified plasma membrane fraction. In contrast, sphingosine-1-phosphate was a relatively poor substrate. PAP-2 activity was slightly enriched in isolated type II cells and low in isolated rat lung fibroblasts. This study shows lung contains PAP-2 activity in plasma membranes and type II cells where it could play a role in signal transduction.