Annexin II has been implicated in membrane fusion during the exocytosis of lamellar bodies from alveolar epithelial type II cells. Most previous studies were based on the fusion assays by using model membranes. In the present study, we investigated annexin II-mediated membrane fusion by using isolated lamellar bodies and plasma membrane as determined by the relief of octadecyl rhodamine B (R18) self-quenching. Immunodepletion of annexin II from type II cell cytosol reduced its fusion activity. Purified annexin II tetramer (AIIt) induced the fusion of lamellar bodies with the plasma membrane in a dose-dependent manner. This fusion is Ca2+-dependent and is highly specific to AIIt because other annexins (I and II monomer, III, IV, V, and VI) were unable to induce the fusion. Modification of the different functional residues of AIIt by N-ethylmaleimide, nitric oxide, or peroxynitrite abolished AIIt-mediated fusion. Arachidonic acid enhanced AIIt-mediated fusion and reduced its Ca2+ requirement to an intracellularly achievable level. This effect is due to membrane-bound arachidonic acid, not free arachidonic acid. Other fatty acids including linolenic acid, palmitoleic acid, myristoleic acid, stearic acid, palmitic acid, and myristic acid had little effect. AIIt-mediated fusion was suppressed by the removal of arachidonic acid from lamellar body and plasma membrane using bovine serum albumin. The addition of arachidonic acid back to the arachidonic acid-depleted membranes restored its fusion activity. Our results suggest that the fusion between lamellar bodies with the plasma membrane is driven by the synergistic action of AIIt and arachidonic acid.