ABSTRACT The 1,024-amino-acid acylated hemolysin of Escherichia coli subverts host cell functions and causes cell lysis. Both activities require insertion of the toxin into target mammalian cell membranes. To identify directly the principal toxin sequences dictating membrane binding and insertion, we assayed the lipid bilayer interaction of native protoxin, stably active toxin, and recombinant peptides. Binding was assessed by flotation of protein-liposome mixtures through density gradients, and insertion was assessed by labeling with a photoactivatable probe incorporated into the target lipid bilayer. Both the active acylated hemolysin and the inactive unacylated protoxin were able to bind and also insert. Ca ²⁺ binding, which is required for toxin activity, did not influence the in vitro interaction with liposomes. Three overlapping large peptides were expressed separately. A C-terminal peptide including residues 601 to 1024 did not interact in either assay. An internal peptide spanning residues 496 to 831, including the two acylation sites, bound to phospholipid vesicles and showed a low level of insertion-dependent labeling. In vitro acylation had no effect on the bilayer interaction of either this peptide or the full-length protoxin. An N-terminal peptide comprising residues 1 to 520 also bound to phospholipid vesicles and showed strong insertion-dependent labeling, ca. 5- to 25-fold that of the internal peptide. Generation of five smaller peptides from the N-terminal region identified the principal determinant of lipid insertion as the hydrophobic sequence encompassing residues 177 to 411, which is conserved among hemolysin-related toxins.