It has been assumed that following hepatic uptake, bilirubin is bound exclusively to cytosolic proteins prior to conjugation by microsomal UDP-glucuronyl-transferase. Since bilirubin partitions into lipid rather than the aqueous phase at neutral pH, we postulated that bilirubin reaches the sites of glucuronidation by rapid diffusion within membranes. To examine this hypothesis, [14C]bilirubin was incorporated into the membrane bilayer of small unilamellar liposomes of egg phosphatidylcholine. Radiochemical assay of this membrane-bound substrate in a physiologic concentration, using native rat liver microsomes, demonstrated immediate formation of bilirubin glucuronides at a more rapid initial velocity than for bilirubin bound to the high-affinity sites of purified cytosolic binding proteins, i.e. glutathione S-transferases (p less than 0.025) or native liver cytosol (p less than 0.05). Kinetic analysis suggested that the mechanisms of substrate transfer from liposomal membranes and from purified glutathione S-transferases to microsomal UDP-glucuronyltransferase were similar. The exchange of 3H- and 14C-labeled bilirubin substrate between binding proteins and liposomal membranes was then investigated using Sepharose 4B chromatography. As the concentration of bilirubin was increased relative to that of protein, net transfer of substrate from the protein to the membrane pool was observed. These findings indicate that bilirubin is efficiently transported by membrane-membrane transfer to hepatic microsomes, where it undergoes rapid conjugation. Bilirubin entering hepatocytes may partition between membrane and cytosolic protein pools, but as intracellular bilirubin concentration increases, the membrane pool is likely to provide a greater proportion of the substrate for glucuronidation.