ABSTRACT: The UDP glycosyltransferases (UGT) attach sugar residues to small lipophilic chemicals to alter their biological properties and enhance elimination. Of the four families present in mammals, two families, UGT1 and UGT2, use UDP glucuronic acid to glucuronidate bilirubin, steroids, bile acids, drugs, and many other endogenous chemicals and xenobiotics. UGT8, in contrast, uses UDP galactose to galactosidate ceramide, an important step in the synthesis of glycosphingolipids and cerebrosides. The function of the fourth family, UGT3, is unknown. Here we report the cloning, expression, and functional characterization of UGT3A1. This enzyme catalyzes the transfer of N-acetylglucosamine from UDP N-acetylglucosamine to ursodeoxycholic acid (3alpha, 7beta-dihydroxy-5beta-cholanoic acid). The enzyme uses ursodeoxycholic acid and UDP N-acetylglucosamine in preference to other primary and secondary bile acids, and other UDP sugars such as UDP glucose, UDP glucuronic acid, UDP galactose, and UDP xylose. In addition to ursodeoxycholic acid, UGT3A1 has activity toward 17alpha-estradiol, 17beta-estradiol, and the prototypic substrates of the UGT1 and UGT2 forms, 4-nitrophenol and 1-naphthol. A polymorphic UGT3A1 variant containing a C121G substitution was catalytically inactive. UGT3A1 is found in the liver and kidney, and to a lesser, in the gastrointestinal tract. These data describe the first characterization of a member of the UGT3 family. Its activity and distribution suggest that UGT3A1 may have an important role in the metabolism and elimination of ursodeoxycholic acid in therapies for ameliorating the symptoms of cholestasis or for dissolving gallstones.