Isolated rat hepatocytes rapidly utilized [(14)C]palmitate and, in particular, synthesized large amounts of neutral lipids from palmitate. Incorporation into cellular lipids occurred at a linear rate proportional to the medium concentration of fatty acids. Oxidation of [(14)C]palmitate to CO(2) increased with time and was much slower than palmitate esterification. Since [(14)C]acetate and [(14)C]glucose were oxidized to CO(2) at a linear rate, the lag in fatty acid oxidation to CO(2) did not involve enzymatic steps subsequent to acetate formation. The relative contribution of palmitate to esterification and to CO(2) formation depended upon the molar ratio of palmitate to albumin (v) and the length of incubation. Dibutyryl cyclic AMP (1 mM) reduced the oxidation of palmitate and acetate to CO(2) by about 50 and 90%, respectively, but did not alter palmitate esterification. However, equivalent concentrations of sodium butyrate produced similar decreases in CO(2) formation. Dibutyryl cyclic AMP (1 mM) also stimulated palmitate oxidation to water-soluble products, principally ketone bodies, by 50-100%. Sodium butyrate exerted no effect, while monobutyryl cyclic AMP and cyclic AMP both stimulated this pathway significantly. These results indicate that both v and dibutyryl cyclic AMP regulate the metabolism of fatty acids by isolated hepatocytes and suggest that hormonal stimulation of adenyl cyclase controls hepatic lipid metabolism.