The regional distribution of steroid and drug metabolism was studied in intact cells and microsomal fractions obtained from the chromatically distinct inner (zona reticularis) and outer (zona fasciculata plus zona glomerulosa) zones of the guinea pig adrenal cortex. Cells isolated from the outer cortical zone produced far more cortisol than cells from the inner zone and cortisol production was stimulated by adrenocorticotropic hormone only in cells from the outer zone. Among the factors which may contribute to the greater cortisol production by the outer zone are a higher rate of 17 alpha-hydroxylation and ratio of 17 alpha- to 21-hydroxylase activities in that zone, both of which favor cortisol synthesis. In contrast, steroid 21-hydroxylase activity was far greater than 17 alpha-hydroxylase activity in microsomes obtained from the inner zone of the adrenal cortex. Microsomal metabolism of various xenobiotics such as benzo(a)pyrene and ethylmorphine proceeded far more rapidly in the inner than outer cortical zone. The zonal differences in metabolism appeared to result in part from differences in the ability of xenobiotics to interact with microsomal cytochromes P-450 in the two zones. The results indicate that the inner zone has a minor role in cortisol production by the adrenal cortex, but its involvement in the production of other steroids cannot be excluded. In contrast, the inner zone appears to have the major role in the metabolism of at least some xenobiotics which may account for its greater vulnerability to the toxic effects of chemicals requiring metabolic activation.