The relevance of metabolism of steroids in target tissues to hormonal action is discussed. Two mechanisms of metabolic regulation at the cellular level are considered: formation of active steroids from steroidal prehormones, and controlled conversion of the active compound to inactive metabolites. Factors regulating the direction in which interconversions between active hormones and inactive metabolites preferentially proceed are mentioned; methods of estimating the preferred directionin vitroandin vivoare described and examples are given. The estradiol‐estrone system in human endometrium is used to describe a case in which a hormone (progesterone) induces an enzymatic activity (17 β‐hydroxysteroid dehydrogenase) and lowers the intracellular/extracellular ratio of concentrations of the active hormone (estradioi) by increasing its conversion to an inactive, or less active, metabolite (estrone). That hormone metabolism can effectively determine the level of unbound hormone available for association to receptors is shown with published data on estradioi in human endometrium, using a kinetic analysis in which binding and Michaelis‐Menten equations are combined.