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Dioxin (2,3,7,8-tetrachlorodibenzo-p-dioxin, TCDD) is a highly potent inducer of cytochrome P-450. The role of the induced P-450 in TCDD toxicity has been obscure as P-450 neither detoxifies TCDD nor activates it to genotoxic or cytotoxic metabolites. We show, using a chick embryo model, that TCDD causes major increases in the NADPH dependent metabolism of arachidonic acid (AA), a predominant cell membrane fatty acid, that it does so with extremely high potency (ED50, 6.3 pmol per egg) and that this metabolism is catalyzed by TCDD-induced cytochrome P-450 species. Thus, TCDD treatment increased by six to ten fold the P-450 mediated hepatic microsomal metabolism of AA to epoxides and monohydroxyeicosatetraenoic acids, products whose diverse biological activities suggest links to TCDD's toxic effects. In contrast only x and x-1 hydroxy AA, inactive products, were significantly formed by the controls. These findings open a new perspective on how P-450 induction could be related to the diverse toxic effects of TCDD. They lead to the novel hypothesis that TCDD-induced cytochrome P-450 metabolizes an endogenous fatty acid to reactive products that in turn mediate or modulate varied manifestations of TCDD toxicity.