O-Acetylation of sialic acids has previously been considered an uncommon modification found on certain salivary mucins and neural gangliosides. We show here that glycosidically bound sialic acids from total membranes of rat liver have surprisingly high levels (approximately 20%) of O-acetylation at the 7- or 9-position. This O-acetylation is further enriched in N-linked oligosaccharides but is barely detectable in ganglioside fractions from the same tissue. The position of O-acetylation on the sialic acid side chain varies between different subcellular fractions. In particular, 7-O-acetylation was enriched in lysosomal membranes and 9-O-acetylation in plasma membranes, whereas Golgi membranes contained both types. This distribution fits with the ability of the rat liver sialate: O-acetyltransferase(s) to synthesize both 7- and 9-O-acetyl esters (Diaz, S., Higa, H. H., Hayes, B. K., and Varki, A. (1989) J. Biol. Chem. 264, 19416-19426) and the fact that 7-O-acetyl esters can migrate to the 9-position at physiological temperature but only under neutral or mildly alkaline conditions. Subcellular fractionation shows that sialate:O-acetyltransferase activity directed toward endogenous acceptors is enriched in Golgi fractions, whereas an intralumenal sialic acid-specific O-acetylesterase activity is not. The O-acetyltransferase is labile and difficult to solubilize in the intact state and cannot be assayed with exogenous acceptors. However, a prelabeled [3H]acetyl intermediate can be solubilized from Golgi membranes with Triton X-100 and is stable for a prolonged time in the cold. In contrast to the transferase, the lumenal esterase is easily released in a stable and water-soluble form from membrane fractions by saponin permeabilization or repeated freeze-thaw. In keeping with this finding, differential subcellular fractionation and continuous sucrose gradients indicate that this enzyme is enriched in lysosomal fractions (see also the accompanying paper (Butor, C., Higa, H. H., and Varki, A. (1993) J. Biol. Chem. 268, 10207-10213). Based upon findings reported in this and previous studies, a model is proposed for the biosynthesis, maturation, and turnover of 7- and 9-O-acetyl esters on the sialic acids of N-linked oligosaccharides that are attached to membrane-bound proteins in the rat liver.