Phenolic steroid sulfatase activity in amnion tissue, amnion homogenate, subcellular fractions, and amnion epithelial cells in culture was demonstrated with radiolabeled estrone sulfate as the substrate. Sulfatase activity could not be detected in either amnion tissue or cells when evaluated with dehydroisoandrosterone sulfate as the substrate. Phenolic steroid sulfatase activity in amnion tissue was linear with incubation time up to 3 h and with amnion tissue weight up to 800 mg/ml. The rate of estrone sulfate hydrolysis in amnion tissue increased in a linear manner with temperature from 3 to 60 C. The apparent Km of amnion tissue sulfatase for estrone sulfate was 9 microM. The highest specific activity of the enzyme was found in both the mitochondrial-lysosomal and microsomal fractions. In studies with amnion epithelial cells in monolayer culture, phenolic steroid sulfatase activity was linear with incubation time up to 4 h and with cell number up to 2 X 10(5)/ml. The apparent Km of amnion cell sulfatase for estrone sulfate was 5.5 microM. The product of hydrolysis, i.e. estrone, was metabolized in situ to 17 beta-estradiol in both amnion tissue and cells. The hydrolysis of estrone sulfate (and possibly other phenolic steroid sulfates present in amniotic fluid) by amnion cells may be important in providing biologically potent estrogens for in situ action.