Manganese-dependent, CMP-independent incorporation of myo-[3H]inositol into phospholipids of rat liver microsomes was studied in an attempt to clarify the physiological significance of this headgroup-exchange reaction. The enzyme responsible worked best with Mn2+ as a co-factor, but Mg2+ at physiological concentrations supported a significant rate of incorporation. The Km for myo-inositol was around 11 μM, yet incorporation of myo-[3H]inositol was unaffected by as much as 5 mM choline, ethanolamine, glycerol or serine; as this is a reversible reaction, these data imply that phosphatidylinositol is the most likely lipid substrate. Similarly, other inositols showed an apparent affinity at least two orders of magnitude lower than myo-inositol. Glucosamine α1–6 myo-inositol also had a low affinity for the enzyme, making it unlikely that this headgroup-exchange activity is part of a metabolic pathway for glycosyl phosphatidylinositols. The phosphatidylinositol radiolabelled by headgroup exchange was deacylated and deglycerated, and the resulting inositol phosphate headgroup co-chromatographed on anion exchange HPLC with myo-inositol 1-phosphate. The simplest interpretation of all the data is the apparent paradox that this enzyme functions at a slow rate under physiological conditions to remove the myo-inositol headgroup from phosphatidylinositol, only to replace it with another myo-inositol.