Large unilamellar vesicles composed of phosphatidylcholine/phosphatidylethanolamine/cholesterol (50:25:25 mole ratio) were treated with phospholipase C. The early stages of phospholipid cleavage are accompanied by mixing of bilayer lipids (monitored by dequenching of octadecylrhodamine fluorescence) and leakage-free mixing of vesicle contents [measured by using 8-aminonaphthalene-1,3,6-trisulfonic acid (ANTS) and p-xylylenebis(pyridinium bromide) (DPX)]. These results are interpreted in terms of vesicle fusion induced by the catalytic activity of phospholipase C. The use of sonicated unilamellar vesicles decreases the lag time, but does not modify the amplitude, of the fusion process. The presence of both phosphatidylethanolamine and cholesterol appears to be essential for measurable fusion effects to occur with low levels of phospholipid hydrolysis. Optimal fusion rates are observed with about 10-20 enzyme molecules per large unilamellar vesicle. This system of catalytically induced liposome fusion may be of relevance for the interpretation of physiological membrane fusion processes.