Plama lipoproteins (and other ligands) are endocytosed by hepatocytes and appear in multivesicular bodies (MVBs) in the Golgi-lysosome region of the cell prior to their degradation. We have isolated MVB fractions from livers of estradiol-treated rats, permitting studies of their properties (Hornick et al. 1985). Here we report our cytochemical studies of lysosomal enzyme activity in partially and highly purified MVB fractions and in MVBs in hepatocytes in situ. Only about 15% of partially or highly purified MVBs were positive for acid phosphatase and arylsulfatase, consistent with the prelysosomal nature of this compartment. Partially purified MVB fractions contained small round vesicles, 70-120 nm in diameter, which, stained intensely for these enzymes; occasionally these vesicles appeared to fuse with MVBs, suggesting that these structures are primary lysosomes. Such stained vesicles were rarely seen in highly purified MVB preparations. Acid phosphatase reaction product with cerium as capture reagent appeared as uniform precipitates surrounding endocytosed plasma lipoproteins in positively stained MVBs. Arylsulfatase reaction product, however, appeared as distinctive are or plaque-like deposits just inside the MVB-limiting membrane, often in continuity with intense reaction product contained in a fusing primary lysosome. Similar putative primary lysosomes were occasionally observed in isolated, "intact" Golgi fractions from the same livers. Similar histochemical reactivities of MVBs and putative primary lysosomes were observed in thin sections of hepatoyctes in situ. These observations support the conclusion that, in hepatocytes, MVBs represent the immediate prelysosomal compartment in the endocytic pathway of macromolecular catabolism, and suggest that MVBs are converted to secondary lysosomes by direct fusion with primary lysosomes arising from closely adjacent Golgi compartment.