Recent studies have identified and characterized the enzymatic mechanism by which hemoglobin-heme is converted to bilirubin. Under physiologic conditions the enzyme system, microsomal heme-oxygenase, is most active in the spleen followed by the liver and bone marrow, all of which are tissues that normally are involved in the sequestration and metabolism of red cells. Indirect evidence suggested that the reticuloendothelial system is important in this process. To test this hypothesis, conversion of heme to bilirubin was studied in macrophages obtained by chemical or immunological means from the peritoneal cavity or from the lungs of rodents. Homogenates of pure populations of these cells were devoid of heme-oxygenase activity, unless before harvesting the macrophages had been exposed to methemalbumin, microcrystalline hemin, or hemoglobin in vivo. In macrophages exposed to heme pigments, the specific activity of heme-oxygenase was far in excess of that in the spleen or liver. Enzyme activity was also present in the granulomatous tissue surrounding subcutaneous hematomas. The heme-oxygenase system in macrophages resembles that in the spleen and liver in that it is localized in the microsomal fraction, has an absolute requirement for molecular oxygen and NADPH, is inhibited by carbon monoxide, and has a similar K(m). These findings indicate that cells of the reticuloendothelial system, presumably including the Kupffer cells of the liver and the macrophages of the spleen, possess the enzymatic machinery for converting hemoglobin-heme to bilirubin. The reaction is a mixed function oxidation, probably involving cytochrome P450 as the terminal oxidase. Enzyme activity in macrophages is capable of regulatory adaptation in response to substrate loads. In the standard assay system for the enzyme, disappearance of heme always was in excess of the amount of bilirubin formed, suggesting the simultaneous presence of alternate routes of heme degradation not involving bilirubin as an end product or intermediate.