The aldo-keto reductase (AKR) 7 family is composed of the dimeric aflatoxin B(1) aldehyde reductase (AFAR) isoenzymes. In the rat, two AFAR subunits exist, designated rAFAR1 and rAFAR2. Herein, we report the molecular cloning of rAFAR2, showing that it shares 76% sequence identity with rAFAR1. By contrast with rAFAR1, which comprises 327 amino acids, rAFAR2 contains 367 amino acids. The 40 extra residues in rAFAR2 are located at the N-terminus of the polypeptide as an Arg-rich domain that may form an amphipathic alpha-helical structure. Protein purification and Western blotting have shown that the two AFAR subunits are found in rat liver extracts as both homodimers and as a heterodimer. Reductase activity in rat liver towards 2-carboxybenzaldehyde (CBA) was resolved by anion-exchange chromatography into three peaks containing rAFAR1-1, rAFAR1-2 and rAFAR2-2 dimers. These isoenzymes are functionally distinct; with NADPH as cofactor, rAFAR1-1 has a low K(m) and high activity with CBA, whereas rAFAR2-2 exhibits a low K(m) and high activity towards succinic semialdehyde. These data suggest that rAFAR1-1 is a detoxication enzyme, while rAFAR2-2 serves to synthesize the endogenous neuromodulator gamma-hydroxybutyrate (GHB). Subcellular fractionation of liver extracts showed that rAFAR1-1 was recovered in the cytosol whereas rAFAR2-2 was associated with the Golgi apparatus. The distinct subcellular localization of the rAFAR1 and rAFAR2 subunits was confirmed by immunocytochemistry in H4IIE cells. Association of rAFAR2-2 with the Golgi apparatus presumably facilitates secretion of GHB, and the novel N-terminal domain may either determine the targeting of the enzyme to the Golgi or regulate the secretory process. A murine AKR protein of 367 residues has been identified in expressed sequence tag databases that shares 91% sequence identity with rAFAR2 and contains the Arg-rich extended N-terminus of 40 amino acids. Further bioinformatic evidence is presented that full-length human AKR7A2 is composed of 359 amino acids and also possesses an additional N-terminal domain. On the basis of these observations, we conclude that AKR7 proteins can be divided into two subfamilies, one of which is a Golgi-associated GHB synthase with a unique, previously unrecognized, N-terminal domain that is absent from other AKR proteins.