The uptake of lipid from the yolk by the yolk sac membrane of the chick embryo is accompanied by the rapid esterification of a large proportion of the yolk cholesterol. This could arise from enhanced acyl-CoA:cholesterol acyltransferase (ACAT) activity and/or inhibition of cholesteryl ester hydrolase (CEH) activity. The activity of ACAT was therefore measured in microsomes obtained from yolk sac membranes at various stages of development. A high level of activity (up to 929 pmol of cholesteryl oleate formed per min per mg protein) was found during the second half of this period. Supplementation with exogenous cholesterol stimulated ACAT activity in microsomes obtained from the tissue at the earlier, but not at the later, stages of development suggesting that the enzyme became saturated with microsomal cholesterol as development proceeded. Correlating with this, the concentration of cholesterol in the microsomes increased 4-fold between 9 and 20 d of development. The activity of CEH was very low in the microsomes and could not be detected in the cytosolic fraction. The activity of a protein, which has been shown to function as an inhibitor of CEH, was found to be present at all stages of development. The high activity of ACAT, together with the low activity of CEH and an active CEH inhibitor protein is a combination well suited to promote an essentially unidirectional conversion of cholesterol to cholesteryl ester. This process may be a major determinant of the rate of lipid transfer from the yolk to the embryo.