(1) The interaction of bile-salt-stimulated human milk lipase and liposomal membranes has been investigated in the presence or absence of sodium taurocholate. Freshly purified enzyme enhances the permeability of liposomal membranes but thermally inactivated enzyme does not. (2) The ability of the enzyme to catalyze the hydrolysis of a relatively hydrophilic substrate, 4-nitrophenyl acetate, and a more hydrophobic substrate, 4-nitrophenyl palmitate, has also been measured in media containing small unilamellar vesicles of egg phosphatidylcholine in both the absence and presence of taurocholate, and also in the presence of free taurocholate in the absence of liposomes. (3) The enzyme-catalyzed hydrolysis of 4-nitrophenyl acetate is enhanced in all of these systems, but 4-nitrophenyl palmitate is protected from enzymic attack in the phosphatidylcholine-bile salt systems. If free taurocholate be present in the system before 4-nitrophenyl palmitate is added, then, and only then, is enzymic activity observed. (4) These results have been interpreted in terms of the importance of the microenvironment around the substrate and the role played by the bile salt surfactant in stimulating the enzyme.