Acetyl coenzyme A has been shown to be required for heparan sulfate degradation for the acetylation of terminal alpha-linked glucosamine residues (Klein, U., Kresse, H., and von Figura, K. (1978) Proc. Natl. Acad. Sci. U.S.A. 75, 5185-5189). We can now demonstrate this requirement in intact isolated lysosomes. When lysosomes deficient in the enzyme alpha-N-acetylglucosaminidase were incubated at 37 degrees C with [3H]acetyl-CoA, tritium was incorporated primarily into glycosaminoglycans. By utilizing hydrolytic enzymes of known specificity, the labeled glycosaminoglycan was identified as heparan sulfate and the radioactivity was shown to be located in acetyl moieties of terminal alpha-N-acetylglucosamine residues. The acetylation of heparan sulfate in alpha-N-acetylglucosaminidase-deficient lysosomes could be stimulated by the addition of 0.5 mM ATP. Lysosomes from normal cells produced some labeled heparan sulfate; however, these organelles showed a significant incorporation of [3H]acetate into free N-acetylglucosamine that was increased over 10-fold by the addition of ATP. The N-acetylation was catalyzed by the enzyme acetyl-CoA:alpha-glucosaminide N-acetyltransferase since lysosomes deficient in this enzyme were unable to incorporate [3H]acetate into either heparan sulfate or N-acetylglucosamine even in the presence of ATP. Incorporation of [3H]acetate from [3H]acetyl-CoA into heparan sulfate (by alpha-N-acetylglucosaminidase-deficient lysosomes) and into N-acetylglucosamine (by normal lysosomes) showed a similar concentration dependence. The concentration for half-maximal incorporation of [3H]acetate was approximately 1 microM for both.