Proteins containing C-terminal "CAAX" sequence motifs undergo three sequential post-translational processing steps: modification of the cysteine with either a 15-carbon farnesyl or 20-carbon geranylgeranyl isoprenyl lipid, proteolysis of the C-terminal -AAX tripeptide, and methylation of the carboxyl group of the now C-terminal prenylcysteine. A putative prenyl protein protease in yeast, designated Rce1p, was recently identified. In this study, a portion of a putative human homologue of RCE1 (hRCE1) was identified in a human expressed sequence tag data base, and the corresponding cDNA was cloned. Expression of hRCE1 was detected in all tissues examined. Both yeast and human RCE1 proteins were produced in Sf9 insect cells by infection with a recombinant baculovirus; membrane preparations derived from the infected Sf9 cells exhibited a high level of prenyl protease activity. Recombinant hRCE1 so produced recognized both farnesylated and geranylgeranylated proteins as substrates, including farnesyl-Ki-Ras, farnesyl-N-Ras, farnesyl-Ha-Ras, and the farnesylated heterotrimeric G protein G ␥1 subunit, as well as geranylgeranylKi-Ras and geranylgeranyl-Rap1b. The protease activity of hRCE1 activity was specific for prenylated proteins, because unprenylated peptides did not compete for enzyme activity. hRCE1 activity was also exquisitely sensitive to a prenyl peptide analogue that had been previously described as a potent inhibitor of the prenyl protease activity in mammalian tissues. These data indicate that both the yeast and the human RCE1 gene products are bona fide prenyl protein proteases and suggest that they play a major role in the processing of CAAX-type prenylated proteins.A variety of proteins are modified with an isoprenoid lipid at a cysteine that is initially four residues from the C terminus (1-3). Such proteins contain the so-called CAAX motif, in which the "C" is the modified cysteine, the "A" residues are most commonly (but not always) aliphatic amino acids, and the "X" residue can be one of several amino acids. The X residue determines whether the protein is modified by the 15-carbon farnesyl lipid or the 20-carbon geranylgeranyl. If the X residue is a leucine, the protein will be geranylgeranylated; several other residues (e.g. Met, Ser, Ala, and Gln) direct farnesylation. Following prenylation of the protein, two additional processing steps occur (4, 5). First, a specific protease cleaves the -AAX tripeptide from the protein, leaving the prenylated cysteine as the new C terminus. The carboxyl group of the prenylcysteine is then methylated by a specific methyltransferase.It is well established that protein prenylation plays a vital role in the membrane localization and function of most prenylated proteins (6). The role that the proteolysis and methylation of prenyl proteins play in their function, however, is not as well understood. Studies on peptides have demonstrated that each processing step significantly increases the affinity of farnesylated peptides for membranes (7), although the effect of th...