1. Rats were treated for 4 weeks with liquid diets that contained, on the basis of energy content, 35% fat, 18% protein and 47% carbohydrate (high-fat diet) or 35% fat, 18% protein, 11% carbohydrate and 36% ethanol (high-fat/ethanol diet). 2. The livers were perfused with 1mm-[1-(14)C]palmitate and with 0, 10mm- or 80mm-ethanol. The oxidation and esterification of palmitate was measured. Two subcellular pools of triacylglycerol were separated; one contained triacylglycerol from cytoplasmic lipid droplets and the other contained triacylglycerol from the endoplasmic reticulum and Golgi apparatus. 3. In the presence of ethanol, liver from rats fed on the high-fat diet esterified about 70% of the [1-(14)C]palmitate taken up compared with 90% in liver from rats fed chow (containing 11% fat on the basis of energy content). Compared with chow diet the high-fat diet did not potentiate the effect of ethanol on storage of [1-(14)C]palmitate in hepatic triacylglycerol. The relation between the fat content of the diet and the degree of fatty liver induced by by ethanol [Lieber & DeCarli (1970) Am. J. Clin. Nutr.23, 474-478] is discussed. 4. The ethanol-containing diet increased the hepatic content of triacylglycerol 4-fold and the increase was exclusively found in the fraction suggested to contain lipid from cytoplasmic lipid droplets. The ethanol-induced fatty liver, perfused with ethanol, esterified and oxidized palmitate at rates that were quite similar to the rates found in high-fat control livers perfused without ethanol. This suggests that the fatty liver had adapted to the presence of ethanol with respect to palmitate metabolism. 5. O(2) and ethanol uptake by the livers were not affected by the ethanol-containing diet.