A new metabolic pathway characterized recently that is expressed in activated macrophages involves the formation of nitric oxide ('N = O) as an intermediate. The 'N = O formed decomposes to nitrite (NO2-) and nitrate (NO3-). The substrate for the reaction is the amino acid arginine which is oxidized at the guanido nitrogen to yield citrulline as the other product of the reaction. The studies reported here show that the activity for this unusual oxidation reaction which is contained in the 100,000 x g supernatant was lost after desalting on a Sephadex G-25 column. A small molecule cofactor was found to be required for the restoration of activity. The addition of (6R)-tetrahydrobiopterin (BH4) and NADPH led to complete recovery of activity in this desalted protein. Analysis of macrophage cell extracts, using high performance liquid chromatography with electrochemical detection, showed that BH4 was present at 17 pmol/10(6) cells or 2.1 microM in macrophage supernatant. Only the (6R)-isomer was present. With the addition of BH4 and NADPH, there was loss of arginine that was equal to the NO2-, NO3-, and citrulline formed. With substoichiometric levels of NADPH relative to BH4, the loss of arginine was greater than the formation of the end products of the reaction. A scheme for the reaction pathway consistent with the results involves N-hydroxylation of arginine as the initial step. The participation of BH4 in this type of oxidative chemistry is consistent with previous characterizations of this co-factor.