Two endogenous ligands for cannabinoid receptors, anandamide (arachidonylethanolamide) and 2-arachidonoylglycerol, lose their biological activities by enzymatic hydrolysis. A cDNA for a rat liver enzyme hydrolyzing anandamide as well as oleamide was overexpressed in COS-7 cells. When the particulate fraction was allowed to react with 2-arachidonoylglycerol, arachidonic acid was produced. In contrast, this hydrolytic reaction did not occur with the control cells. The hydrolysis of 2-arachidonoylglycerol proceeded about 4-fold faster than the anandamide hydrolysis with a Km value as low as 6 microM and an optimal pH of 10. Phenylmethylsulfonyl fluoride and methyl arachidonyl fluorophosphonate inhibited the hydrolysis of both anandamide and 2-arachidonoylglycerol in parallel. Furthermore, the hydrolysis of [14C]2-arachidonoylglycerol was inhibited by anandamide dose-dependently. These results suggest that anandamide and 2-arachidonoylglycerol can be inactivated by the same enzyme.