The potent gonadal steroids testosterone and estradiol are synthesized from the biologically weak precursors, androstenedione and estrone, by enzymatic reduction of the ketone group at carbon-17 of the steroid nucleus (17-ketosteroid reductase). To test the hypothesis that Leydig and granulosa cells may contain a distinct 17-ketosteroid reductase enzyme, the subcellular localization and the substrate specificity of the enzyme was examined in each cell type. In Leydig cells, the 17-ketosteroid reductase activity was concentrated in the microsomal fraction of the cell. In granulosa cells, the 17-ketosteroid reductase activity was concentrated in the cytosolic fraction of the cell. In Leydig cell microsomes, the apparent Michaelis-Menten constant for the conversion of androstenedione to testosterone was 0.41 mumol/L and for the conversion of estrone to estradiol it was 12 mumol/L. In granulosa cell cytosol, the apparent Michaelis-Menten constant for the conversion of estrone to estradiol was 1.1 mumol/L and for the conversion of androstenedione to testosterone it was 15 mumol/L. These results demonstrate that rat Leydig and granulosa cells each contain a 17-ketosteroid reductase enzyme with unique subcellular localization and substrate specificity.