1. Formation of catechols from benzene and nitrobenzene have been implicated in the carcinogenic activity of these chemicals. In liver, p-nitrophenol, an intermediate of p-nitrobenzene is enzymatically converted to 4-nitrocatechol. 2. For the first time in this study, the presence of a highly active enzyme catalyzing the formation of 4-nitrocatechol from p-nitrophenol was detected in lung microsomes. The average specific activity of lung p-nitrophenol hydroxylase was found to be 0.494 nmol 4-nitrocatechol formed mg prot-1 min-1. 3. The optimum conditions for sheep lung microsomal p-nitrophenol hydroxylase were established. The maximal activity was noted at pH 6.8. The rate of p-nitrophenol hydroxylation was linear up to 2 mg prot/ml of incubation mixture. The maximal rate of 4-nitrocatechol formation was observed with 0.25 mM p-nitrophenol. 4. The Lineweaver-Burk and Eadie-Hofstee plots were found to be curve-linear. Two different Km values were calculated as 11.6 and 71.4 microM from the Lineweaver-Burk plot and as 10.7 and 74.5 microM from the Eadie-Hofstee plot. This suggested that there were either two forms of enzyme or two different enzymes participating in ortho hydroxylation of p-nitrophenol in lung microsomes. 5. Lung microsomal p-nitrophenol hydroxylase activity of sheep was reconstituted in the presence of purified lung microsomal cytochrome P-450, NADPH dependent cytochrome P-450 reductase and synthetic lipid, phosphatidylcholine dilauroyl.