1. Evidence has been provided for the transfer of phosphatidyl[14C]choline and [3H]cholesterol between bovine serum albumin and cauda epididymal rat spermatozoa in Krebs-Ringer bicarbonate medium, which can promote sperm capacitation. 2. An analysis of the lipid composition in both albumin and spermatozoa revealed that phospholipid levels decreased in the protein and increased by roughly comparable amounts in sperm cells during incubation in vitro. 3. Cholesterol (free + ester) increased in albumin and decreased in spermatozoa. Changes in the amount of esterified cholesterol were solely responsible for the increase associated with albumin, whereas whole sperm cell extracts showed a significant decline in free cholesterol. 4. The composition of albumin-bound fatty acids did not alter appreciably as a result of incubation with spermatozoa. 5. Rates of [14C]palmitic acid utilization by spermatozoa suggest that lipid synthesis accounted for less than 5% of the changes observed under the conditions of this study. 6. These results are interpreted as broadly supporting our previous proposal that lipid exchange between albumin and sperm cells is implicated in sperm capacitation in vitro. Specifically, the results are compatible with the idea that a decreased cholesterol/phospholipid ratio in the sperm plasma membrane facilitates this transformation.