The effects of ethanol administration on activity and regulation of carnitine palmitoyltransferase I (CPT-I) were studied in hepatocytes isolated from rats fed a liquid, high-fat diet containing 36% of total calories as ethanol or an isocaloric amount of sucrose. Cells were isolated at several time points in the course of a 5-week experimental period. Ethanol consumption markedly decreased CPT-I activity and increased enzyme sensitivity to inhibition by exogenously added malonyl-CoA. Changes in enzyme activity occurred sooner than those in enzyme sensitivity. Fatty acid oxidation to CO₂ and ketone bodies was depressed in hepatocytes from ethanol-fed animals during the first part of the treatment. At the end of the 35-day period, there were no longer differences in the rate of ketogenesis between the two groups. At that time, however, the rate of CO₂ formation was still impaired in the ethanol-fed animals. Furthermore, addition of ethanol or acetaldehyde to the incubation medium strongly depressed CPT-I activity and rates of fatty acid oxidation in hepatocytes from ethanol-treated rats, whereas these effects were much less pronounced in cells from control animals. The response of CPT-I activity to insulin, glucagon, vasopressin, and phorbol ester was blunted in cells derived from ethanol-fed rats. These changes in the regulation of CPT-I activity corresponded with those observed in the rate of fatty acid oxidation. It is concluded that CPT-I may play a role in the generation of the ethanol-induced fatty liver.