What is lipolyzed fat?

In short, they are enzyme modified fats, used to enhance dairy flavor. They are natural dairy flavors made with the use of lipase enzyme and cultures to treat fresh milk/cream/butter (i.e. Lipolyzed Butterfat or Lipolyzed Cream). The lipase enzyme causes milkfat to split into free fatty acids liberating the flavors from volatile compounds lactones and methyl ketones. To destroy the culture bacteria and the enzyme, the lipolyzed product is heated after lipolysis.