N-Deacetylation is the initial polymer modification step in heparan sulfate biosynthesis and a prerequisite to subsequent N- and O-sulfation. It has previously been shown that the sulfation of liver heparan sulfate is lowered in diabetes (Kjellén, L., Bielefeld, D., and Höök, M. (1983) Diabetes 32, 337-342). To investigate whether the reduced sulfation is the result of a lowered N-deacetylase activity, we have assayed this enzyme in hepatocytes from streptozotocin-diabetic rats. In addition, the activity of the glucuronosyl C5-epimerase, which catalyzes a modification reaction subsequent to N-sulfation, was measured. The deacetylase activity, expressed per microgram of cell protein, was about 40% lower in diabetic hepatocytes as compared with control cells, whereas the epimerase activity was unaffected. Recently, a approximately 110-kDa glycoprotein that carries N-sulfotransferase activity was identified as one of at least two protein components required for N-deacetylation in mouse mastocytoma tissue (Pettersson, I., Kusche, M., Unger, E., Wlad, H., Nylund, L., Lindahl, U., and Kjellén, L. (1991) J. Biol. Chem. 266, 8044-8049). We therefore investigated if the lowered N-deacetylase activity in diabetes could be ascribed to a deficiency in either one of the corresponding rat components. The results indicated that (i) the glycoprotein component is present in limiting amounts in both control and diabetic cells, (ii) diabetes results in a lowered activity of this component, and (iii) excess amounts of the additional protein(s) needed for N-deacetylase activity are present in both control and diabetic cells.