Ceramide, a key intermediate in sphingolipid metabolism, is synthesized by acylation of sphinganine followed by dehydrogenation of dihydroceramide to ceramide. Using radioactive sphinganine, we have examined the site and topology of dihydroceramide synthesis in well-characterized subcellular fractions from rat liver. [4,5-3H]Sphinganine was introduced as a complex with BSA and was metabolized to [4,5-3H]dihydroceramide upon incubation of rat liver homogenates or microsomes with fatty acyl CoA. Conditions were established in a detergent-free system in which dihydroceramide synthesis was not limited by either substrate availability or by amounts of microsomal protein or reaction time. The distribution of dihydroceramide synthesis was found to exactly parallel that of an endoplasmic reticulum (ER) marker upon subfractionation of microsomes, and no endogenous activity was detected in either purified Golgi apparatus or plasma membrane fractions. Limited protease digestion demonstrated that sphinganine N-acyltransferase is localized at the cytosolic surface of intact ER-derived vesicles. These results are discussed with regard to the subsequent transport of (dihydro)-ceramide from the ER to sites of further metabolism in a pre-Golgi apparatus compartment and in the cis and medial cisternae of the Golgi apparatus.