3-Methyl-substituted fatty acids are first oxidatively decarboxylated (α-oxidation) before they are degraded further via β-oxidation. We synthesized [1-14C]phytanic and 3-[1-14C]methylmargaric acids in order to study their α-oxidation in isolated rat hepatocytes, rat liver homogenates and subcellular fractions. α-Oxidation was measured as the production of radioactive CO2. In isolated hepatocytes, maximal rates of α-oxidation amounted to 7 and 10 nmol/min × 108 cells with phytanic acid and 3-methylmargaric acid, respectively. At equimolar substrate concentrations, α-oxidation of branched fatty acids was approximately 10- to 15-fold slower than the β-oxidation of the straight chain palmitate. In whole liver homogenates, rates of α-oxidation that equaled 60 to 70% of those observed in the hepatocytes were obtained. Optimum rates required O2, NADPH, Fe3+, and ATP. Fe3+ could be replaced by Fe2+ and ATP could be replaced by a number of other phosphorylated nucleosides and even inorganic phosphate without loss of activity. NADH could substitute for NADPH but not always with full restoration of activity. A variety of other cofactors and metal ions was either inhibitory or without effect. Scavengers of reactive oxygen species, known to be formed during the NADPH-dependent microsomal reduction of ferric-phosphate complexes, were without effect on α-oxidation. No evidence was found for the accumulation of NADPH-dependent or Fe3+-dependent reaction intermediates. Subcellular fractionation of liver homogenates demonstrated that α-oxidation was located predominantly, if not exclusively, in the endoplasmic reticulum. α-Oxidation, measured in microsomal fractions, was not inhibited by CO, cytochrome c, or ferricyanide, indicating that NADPH cytochrome P450 reductase and cytochrome P450 are not involved in α-oxidation. Our results indicate that, contrary to current belief, α-oxidation is catalyzed by the endoplasmic reticulum. The cofactor requirements suggest that α-oxidation involves the reduction of Fe3+ by electrons from NADPH and that it is stimulated by phosphate ions and nucleotides. © 1992.