Carboxypeptidase E (CPE) is involved in peptide processing in the brain and various neuroendocrine tissues. In mice homozygous for the Cpe(fat) mutation, the virtual absence of CPE activity in islets of Langerhans and pituitary was associated with a missense mutation effecting a Ser(202) to Pro shift (Naggert, J. K., Fricker, L. D., Varlamov, O., Nishina, P. M., Rouille, Y., Steiner, D. F., Carroll, R. J., Paigen, B. J., and Leiter, E. H. (1995) Not. Genet. 10, 135-142). To examine the importance of Ser(202) in CPE function, several mutations in this position were generated (pro(202), Ala(202), Gly(202), and Phe(202)). When the mutant proteins were expressed in a Baculovirus system, both Phe(202) and Pro(202)CPE were enzymatically inactive, were unable to bind to a substrate affinity column, and were not secreted from Sf9 cells. In contrast, Ala(202)CPE or Gly(202)CPE exhibited enzymatic properties similar to those of wild-type CPE and were secreted from Sf9 cells. When expressed in AtT-20 cells, a mouse pituitary-derived cell line, CPE with pro(202) and Phe(202) were not secreted. Pulse-chase analysis with [S-35]Met indicated that Pro(202)CPE Wag degraded in AtT-20 cells within several hours. This degradative process was blocked by incubation at 15 degrees C but not by brefeldin A or by lysoso-motrophic drugs. Pulse-chase analysis using dispersed pituitary cells from C57BLKS/Lt-Cpe(fat)/Cpe(fat) mutant mice shows similar results; Pro(202)-CPE produced in these cells was not secreted but rather was degraded within 5 h. Immunofluorescence analysis of epitope-tagged CPE revealed Ser(202)CPE to be present primarily in secretory vesicles, whereas pro(202)CPE was localized to the endoplasmic reticulum and not the secretory vesicle-like structures. These results support the previous finding that Cpe(fat)/Cpe(fat) mice are defective in CPE activity because of the point mutation producing the Ser(202) to Pro substitution. Furthermore, these results are consistent with a model that Ser(202) is important for the intracellular folding of CPE.