Phagocyte activation is accompanied by assembly of an NADPH oxidase that reduces oxygen to form a number of reactive species. These oxygen radicals can eradicate invading microorganisms, regulate the function of other immune reactive cells, and cause damage to "innocent bystander" cells. It is generally assumed that the NADPH oxidase is activated exclusively in the plasma membrane. In neutrophils, this assumption does not fit with the subcellular localization of the membrane component of the oxidase, which is stored in granule compartments. It has now become increasingly evident that oxidants are also produced in an intracellular compartment that we identify as the specific granules. Myeloperoxidase is stored in another granule subset, the azurophil granules, and participates in the processing of the oxidative metabolites. We suggest that neutrophil activation is accompanied by fusion between azurophil and specific granules, allowing these peroxidase-dependent reactions to take place. The presented data suggest a requisite role for neutrophil oxidants complementing their function as microbial killing agents. Signaling capabilities of the oxidants, affecting for example, the state of protein phosphorylation, regulation of transcription factors, and induction of apoptosis, are discussed.