Purified human milk lipoamidase was digested with endoproteinase Lys-C and the digested peptides were subjected to gasphase microsequence analysis. The sequencing of three isolated peptides of human milk lipoamidase revealed the identity of this protein with human milk bile salt-stimulated lipase (pancreatic cholesterol esterase). The identity of the cholesterol esterase with lipoamidase was confirmed by expressing a recombinant form of rat pancreatic cholesterol esterase and testing for lipoamidase activity of the recombinant protein. The results showed that the recombinant cholesterol esterase displayed both lipolytic and lipoamidase activities and was capable of hydrolysing triacetin and lipoyl-4-aminobenzoate (LPAB). The mechanisms of the esterase and amidase activities of the enzyme were further tested by determining enzyme activity in a mutagenized cholesterol esterase with a His435-->Gln435 substitution. This mutation has been shown previously to abolish enzyme activity against esterase substrates [DiPersio, Fontaine and Hui (1991) J. Biol. Chem. 266, 4033-4036]. We showed that the mutagenized protein was effective in hydrolysing the amidase substrate LPAB and displayed similar enzyme kinetics to those of the native enzyme. These data indicate that the mechanism for the cholesterol esterase hydrolysis of lipoamides is different from that of the hydrolysis of substrates with an ester linkage. The presence of an enzyme in the gastrointestinal tract capable of both ester and amide hydrolysis suggests an important role for this protein in the digestion and absorption processes.