In fat cells isolated from the parametrial adipose tissue of rats, the addition of purified adenosine deaminase increased lipolysis and cyclic adenosine 3':5'-monophosphate (cyclic AMP) accumulation. Adenosine deaminase markedly potentiated cyclic AMP accumulation due to norepinephrine. The increase in cyclic AMP due to adenosine deaminase was as rapid as that of theophylline with near maximal effects seen after only a 20-sec incubation. The increases in cyclic AMP due to crystalline adenosine deaminase from intestinal mucosa were seen at concentrations as low as 0.05 mug per ml. Further purification of the crystalline enzyme preparation by Sephadex G-100 chromatography increased both adenosine deaminase activity and cyclic AMP accumulation by fat cells. The effects of adenosine deaminase on fat cell metabolism were reversed by the addition of low concentrations of N6-(phenylisopropyl)adenosine, an analog of adenosine which is not deaminated. The effects of adenosine deaminase on cyclic AMP accumulation were blocked by coformycin which is a potent inhibitor of the enzyme. These findings suggest that deamination of adenosine is responsible for the observed effects of adenosine deaminase preparations. Protein kinase activity of fat cell homogenates was unaffected by adenosine or N6-(phenylisopropyl)adenosine. Norepinephrine-activated adenylate cyclase activity of fat cell ghosts was not inhibited by N6-(phenylisopropyl)adenosine. Adenosine deaminase did not alter basal or norepinephrine-activated adenylate cyclase activity. Cyclic AMP phosphodiesterase activity of fat cell ghosts was also unaffected by adenosine deaminase. Basal and insulin-stimulated glucose oxidation were little affected by adenosine deaminase. However, the addition of adenosine deaminase to fat cells incubated with 1.5 muM norepinephrine abolished the antilipolytic action of insulin and markedly reduced the increase in glucose oxidation due to insulin. These effects were reversed by N6-(phenylisopropyl)adenosine. Phenylisopropyl adenosine did not affect insulin action during a 1-hour incubation. If fat cells were incubated for 2 hours with phenylisopropyl adenosine prior to the addition of insulin for 1 hour there was a marked potentiation of insulin action. The potentiation of insulin action by prior incubation with phenylisopropyl adenosine was not unique as prostaglandin E1, and nicotinic acid had similar effects.