In order to achieve a stable and functional immobilization of antibodies, we investigated the possibility of adding hydrophobic membrane anchors to antibody fragments expressed in Escherichia coli. The DNA sequence encoding the signal peptide and the nine N-terminal amino add residues of the major lipoprotein of E.coli was fused to the sequence of an anti-2-phenyloxazolone single-chain Fv antibody fragment [Takkinen et al. (1991) Protein Engng, 4, 837–841]. The expression of the fusion construct in E.coli resulted in specific accumulation of an immunoreactive 28 kDa polypeptide. Unlike the unmodified single-chain Fv fragment, the fusion protein was cell-associated, labelled by [3H]palmitate which is indicative of the presence of N-terminal lipid modification, partitioned into the detergent phase upon Triton X-114 phase separation and was localized predominantly in the bacterial outer membrane. The fusion antibody displayed specific 2-phenyloxazolone-binding activity in the membranebound form and after solubilization with non-ionic detergents. Furthermore, upon removal of detergent the fusion antibody was incorporated into proteoliposomes which displayed specific hapten-binding activity. Our results show that antibodies can be converted to membrane-bound proteins with retention of antigen-binding properties by introduction of lipid anchors during biosynthesis. This approach may prove useful in the design of immunoliposomes and immunosensors.