We describe a simple assay for measuring squalene epoxidase specific activity in Saccharomyces cerevisiae cell-free extracts, by using [14C] farnesyl pyrophosphate as substrate. Cofactor requirements for activity are FAD and NADPH or NADH, NADPH being the preferred reduced pyridine nucleotide. Squalene epoxidase activity is localized in microsomal fraction and no supernatant soluble factor is required for maximum activity. Microsomal fraction converted farnesyl pyrophosphate into squalene, squalene 2,3-epoxide and lanosterol, showing that squalene 2,3-epoxide-lanosterol cyclase is also a microsome-bound enzyme. We show also that squalene epoxidase activity is not inhibited by ergosterol or lanosterol, but that enzyme synthesis is induced by oxygen.