Thirty-four of 49 isolates of psychrotrophic bacteria produced extracellular lipase or protease when grown in rehydrated nonfat dry milk. The cell-free crude preparation from 50% of these had either heat-resistant lipase or protease; in 30% both enzymes were heat resistant. Eight isolates were selected for further evaluation of effect on ultra-high temperature processed milk. Free fatty acids and free amino groups of milk precultured with the bacteria increased at different rates depending on the isolate. Partially purified lipase from one of these bacteria (Acinetobacter sp.) caused free fatty acids to increase following ultra-high temperature processing when the milk was stored at 10, 21, or 32 degrees C for 4 wk. The increase was temperature dependent. Lipase activity of .0012 units/ml added prior to processing caused significant increases in free fatty acid at 21 and 32 degrees C in 4 wk.