Functionally intact acetylcholine receptors can be solubilized from electric organ membranes of Torpedo californica and incorporated into liposomes by the cholate dialysis technique. Freezing and thawing of the reconstituted preparation appears to seal a population of initially leaky vesicles and leads to vesicle fusion. Inclusion of supplementary cholesterol at an optimal concentration of 20% (w/w) greatly enhances vesicle fusion during the freeze-thaw cycle. Size analysis by electron microscopy of negatively stained preparations indicates that fusion is accompanied by shifts in size and volume distributions of the vesicle population. Liposomes formed in the absence of acetylcholine receptors are distributed over a substantially smaller size range than liposomes containing receptors. Acetylcholine receptors appear in those liposomes as dimers of 80 A doughnut-shaped particles. Freeze-fracture replicas of reconstituted preparations reveal the presence of large vesicles containing particles which correspond in size to acetylcholine receptors and smaller liposomes devoid of particles. The distribution of particles in the reconstituted membranes is sparse compared to their dense packing in native electric organ membranes. The activation and desensitization of reconstituted acetylcholine receptors mediated by acetylcholine or carbamylcholine is dose dependent. The reconstituted receptors distinguish between these agonists in terms of binding affinity in a way similar to receptors in the native membrane. Correlation of the fractional occupancy of ligand binding sites by cobratoxin with inhibition of receptor function is used to demonstrate that in the reconstituted system the doubly liganded acetylcholine receptor prevails in controlling channel gating. The potential experimental advantages as well as limitations of this reconstituted system are discussed.