An enzyme that hydrolyzes flavin-adenine dinucleotide (FAD) was found to be present in rat liver lysosomal membrane prepared from Triton WR-1339 filled lysosomes (tritosomes) purified by flotation on sucrose. This FAD phosphohydrolase (FADase) exhibited optimal activity at pH 8.5 and had an apparent Km of approximately 3.3 mM. The activity was decreased 50~70% by dialysis against EDTA and this was restored by $Zn^{2+}$, $Mg^{+2}$, $Hg^{+2}$, and $Ca^{+2}$ ions inhibited the enzyme, but $F^-$ and molybdate had no effect. The enzyme was also inhibited by p-chloromercuribenzoate (pCMB), reduced glutathione and other thiols, cyanide, and ascorbate. The presence of ATP, ADP, AMP. ${alpha}-{eta}-methylene$ ATP, AMP-p-nitrophenyl phosphate (PNP), GMP, and coenzyme A (CoA) decreased the activity on FAD, but pyrimidine nucleotides, adenosine, adenine, or $NAD^+$ were without effect. Phosphate stimulated the activity slightly. FAD phosphohydrolase activity was separated from ATPase and inorganic pyrophosphatase activities by solubilization with detergents and polyacrylamide gel electrophoresis and by linear sucrose density gradient centrifugation suggesting that the enzyme is different from ATPase, inorganic pyrophosphatase, and soluble lysosomal FAD pyrophosphatase. Paper chromatography showed that FAD was hydrolyzed to flavin mononucleotide (FMN) and AMP which were further hydrolyzed to riboflavin and AMP by phosphatases known to be present in lysosomal membranes. Incubation of the intact Iysosomes with pronase showed that the active site of FAD phosphohydrolase must be oriented to the cytosol. The FAD hydrolyzing activity was detected in Golgi, microsome, and plasma membrane, but not in mitochondria or soluble lysosomal preparations.