The role of membrane lipid-protein interactions in malignant cell transformation was examined with adenosine deaminase (ADA) as a representative membrane protein. ADA's activity changes dramatically in transformed cells and accordingly it is a malignancy marker. Yet, the mechanisms controlling its variable activity are unknown. We undertook the spectroscopic deciphering of its interactions with its lipidic environment in normal and malignant cells. ADA exists in two interconvertible forms, small (45 KD) and large (210KD). The large form consists of two small catalytic subunits (SS-ADA) and a dimeric complexing protein ADCP. The physiological role of ADCP was not known either. Our studies were carried out at three levels: 1. Solution enzyme kinetics, 2. The interaction of SS-ADA with ADCP reconstituted in liposomes: effect of cholesterol and 3. Multifrequency phase modulation spectrofluorometry of pyrene-labeled SS-ADA bound to ADCP on the membranes of normal and RSV or RSV Ts68 transformed chick embryo fibroblasts. We found: 1. ADCP has an allosteric regulatory role on SS-ADA, which may be of physiological relevance: It inhibits SS-ADA activity at low physiological adenosine concentrations but accelerates deamination at high substrate concentration. 2. When reconstituted in DMPC liposomes, it retains SS-ADA activity (in its absence the activity is lost) and upon rigidification with cholesterol, a three fold increase in SS-ADA activity is attained, contrary to ADCP's regulatory activity when free of lipids.