Several isozymes of mammalian type 2, Mg²⁺-independent phosphatidic acid phos-phatase (PAP-2) have recently been cloned, and they are predicted to have their cata-lytic sites exposed at the cell surface membranes. We investigated the mode of utilization of extracellular lipid substrates by the human PAP-2b expressed in HEK293 cells as a green fluorescent fusion protein. We first confirmed the plasma membrane localization of the expressed PAP-2b. PAP-2b actively hydrolyzed exogenously added lysophosphatidic acid and short-chain phosphatidic acid. In the case of dephosphoryla-tion of lysophosphatidic acid, the reaction products, including inorganic phosphate and monoacylglycerol, were recovered exclusively in the extracellular medium. Interest-ingly, PAP-2b exhibited negligible activities toward long-chain phosphatidic acid either exogenously when added or generated within the membranes by treating the cells with bacterial phospholipase D. These findings indicate that PAP-2b acts at the outer leaflet of cell surface bilayers and can account for the ecto-PAP activities previously described for various types of cells.