A procedure has been developed for the biochemical and cytochemical localization of inosine-5'-diphosphatase (IDPase) in rat liver microsomal fractions. The concentration of Pb2+ ions used in the cytochemical incubation medium inhibited IDPase by 32%. IDP formed during the incubation was not hydrolysed further to inosine, and no significant non-enzymic hydrolysis of substrate occurred. When microsomal fractions were incubated cytochemically for IDPase and separated from unchanged substrate under conditions such that the microsomal membrane was not permeable to EDTA, approx. 80% of the reaction product was solubilized by EDTA. In the electron microscope, lead precipitate was observed on the cytoplasmic side (outside) of a major fraction of the vesicles and on the cisternal side (inside) of others. After extraction with EDTA, the lead precipitate was observed only on the cisternal side. Since it was shown that phosphate is trapped on the same side of the membrane as it is released, it is concluded that IDPase can release phosphate on either the cisternal or the cytoplasmic side of the microsomal membrane.