In this study we provide evidence for the first time that rat liver microsomal and peroxisomal fractions are able to phosphorylate free farnesol to its diphosphate ester in a CTP dependent manner. The farnesyl diphosphate (FPP) kinase activity is decreased in whole liver homogenates obtained from rats treated with cholesterol and unchanged in homogenates obtained from rats treated with cholestyramine. In contrast, farnesyl pyrophosphatase (FPPase) activity, an enzyme which specifically hydrolyzes FPP to farnesol is only found in the microsomal fraction and is unaffected by treatment of rats with cholesterol or cholestyramine. In addition, we also demonstrate that farnesol can be oxidized to a prenyl aldehyde, presumably by an alcohol dehydrogenase (ADH), and that this activity resides in the mitochondrial and peroxisomal fractions.