A soluble enzyme system which catalyzes the conversion of fatty acids to their ω-hydroxy derivatives and n -alkanes to primary alcohols has been obtained from a strain of Candida tropicalis grown on tetradecane as the carbon source. The hydroxylation reaction requires TPNH and molecular oxygen and is inhibited by carbon monoxide. Lauric acid appeared to be the most active of a series of substrates tested. Fractionation of a cell-free extract of the yeast with ammonium sulfate indicated that at least two components are required for maximal activity. One fraction contained cytochrome P-450 as judged by the carbon monoxide difference spectrum of the dithionite-reduced preparation. The hydroxylation activity and the content of both cytochrome P-450 and TPNH-cytochrome c reductase (which may function as a cytochrome P-450 reductase) were greatly enhanced in cells grown on hydrocarbon.