Proprotein convertases are responsible for the endoproteolytic activation of proproteins in the secretory pathway. The most recently discovered member of this family, lymphoma proprotein convertase (LPC), is a type-I transmembrane protein. Previously, we have demonstrated that its cytoplasmic tail is palmitoylated. In this study, we have identified the two most proximal cysteine residues in the cytoplasmic tail as palmitoylation sites. Substitution of either cysteine residue by alanine interfered with palmitoylation of the other. Palmitoylation of LPC was found to be sensitive to the protein palmitoyltransferase inhibitor tunicamycin but not cerulenin. It was also insensitive to the drugs brefeldin A, monensin and cycloheximide, indicating that the modification occurs in a late exocytic or endocytic compartment. Turnover of palmitoylated LPC is significantly faster (t(1/2) approximate to 50 min) than that of the LPC polypeptide backbone (t(1/2) approximate to 3 h), suggesting that palmitoylation is reversible. Abrogation of palmitoylation reduced the half-life of the LPC protein, but did not affect steady-state localization of LPC in the trans-Golgi network. Finally, LPC could not be detected in detergent-resistant membrane rafts. Taken together, these results suggest that dynamic palmitoylation of LPC is important for stability but does not function as a dominant trafficking signal.