The role of the microsomal ethanol-oxidizing system (MEOS) in hepatic ethanol metabolism is reviewed, with focus on its constitutive, ethanol-inducible cytochrome P-4502E1 (2E1). The MEOS was purified and reconstituted using 2E1, phospholipids, and cytochrome P-450 reductase and shown to oxidize ethanol to acetaldehyde, mainly as a monooxygenase and secondarily via hydroxyl radicals, with transcriptional and posttranscriptional regulation. Polymorphism of 2E1 was recognized, and enzymology (including cofactors, role of lipids, inducers, and inhibitors) as well as cellular and tissue distribution were chartered. Physiological functions involve lipid metabolism and ketone utilization in starvation, obesity, and diabetes. The most significant role of 2E1 is its adaptive response to high blood ethanol levels with a corresponding acceleration of ethanol metabolism. The associated free radical production, however, contributes to liver injury in the alcoholic. Most importantly, 2E1 has a unique capacity to activate many xenobiotics (85 of which are listed) to hepatotoxic or carcinogenic products. Induction of 2E1 also results in enhanced production of acetaldehyde, a highly reactive and toxic metabolite. The proliferation of the endoplasmic reticulum associated with 2E1 induction is also accompanied by enhanced activity of other cytochrome P-450s, resulting in accelerated metabolism of, and tolerance to, other drugs, as well as increased degradation of retinol and its hepatic depletion. Some substrates and metabolites, however, are innocuous and may eventually be used as markers of heavy drinking. Recently discovered effective 2E1 inhibitors also have great therapeutic potential.