We demonstrate herein dramatic acceleration of aqueous nitric oxide (NO) reaction with O2 within the hydrophobic region of either phospholipid or biological membranes or detergent micelles and demonstrate that the presence of a distinct hydrophobic phase is required. Per unit volume, at low amounts of hydrophobic phase, the reaction of NO with O2 within the membranes is approximately 300 times more rapid than in the surrounding aqueous medium. In tissue, even though the membrane represents only 3% of the total volume, we calculate that 90% of NO reaction with O2 will occur there. We conclude that biological membranes and other tissue hydrophobic compartments are important sites for disappearance of NO and for formation of NO-derived reactive species and that attenuation of these potentially damaging reactions is an important protective action of lipid-soluble antioxidants such as vitamin E.