It has been suggested that anandamide (N-arachidonoylethanolamine), an endogenous cannabinoid substance, may be produced through Ca2+-stimulated hydrolysis of the phosphatidylethanolamine (PE) derivative N-arachidonoyl PE. The presence of N-arachidonoyl PE in adult brain tissue and the enzyme pathways that underlie its biosynthesis are, however, still undetermined. We report here that rat brain tissue contains both anandamide (11 +/- 7 pmol/gm wet tissue) and N-arachidonoyl PE (22 +/- 16 pmol/gm), as assessed by gas chromatography/mass spectrometry. We describe a N-acyltransferase activity in brain that catalyzes the biosynthesis of N-arachidonoyl PE by transferring an arachidonate group from the sn-1 carbon of phospholipids to the amino group of PE. We also show that sn-1 arachidonoyl phospholipids are present in brain, where they constitute approximately 0.5% of total phospholipids. N-acyltransferase activity is Ca2+ dependent and is enriched in brain and testis. Within the brain, N-acyltransferase activity is highest in brainstem; intermediate in cortex, striatum, hippocampus, medulla, and cerebellum; and lowest in thalamus, hypothalamus, and olfactory bulb. Pharmacological inhibition of N-acyltransferase activity in primary cultures of cortical neurons prevents Ca2+-stimulated N-arachidonoyl PE biosynthesis. Our results demonstrate, therefore, that rat brain tissue contains the complement of enzymatic activity and lipid substrates necessary for the biosynthesis of the anandamide precursor N-arachidonoyl PE. They also suggest that biosynthesis of N-arachidonoyl PE and formation of anandamide are tightly coupled processes, which may concomitantly be stimulated by elevations in intracellular Ca2+ occurring during neural activity.