Surfactant protein (SP)-C propeptide (proSP-C) becomes palmitoylated on cysteines 5 and 6 before mature SP-C is formed by several proteolytic steps. To study the structural requirements for the palmitoylation of proSP-C, his-tagged human proSP-C (his-proSP-C) and his-proSP-C mutants were expressed in Chinese hamster ovary cells and analyzed by metabolic labeling with [(3)H]palmitate and immunocytochemistry. Substitution of cysteines 5 and 6 by serines showed that these were the only two cysteine residues palmitoylated in his-proSP-C. Substitution of the juxtamembrane basic residues lysine and arginine by uncharged glutamines led to a large decrease in palmitoylation level of proSP-C. The addition of brefeldin A nearly abolished this decrease for the lysine and double mutant; the palmitoylation of the arginine mutant increased also, but not to wild-type (WT) levels. Fluorescence immunocytochemistry showed that WT proSP-C was localized in punctate vesicles throughout the cell, whereas the mutant lacking the juxtamembrane positive charges was found more perinuclear, probably in the endoplasmic reticulum (ER). This indicates that the two basic juxtamembrane residues influence palmitoylation of proSP-C by preventing the transport of proSP-C out of the ER, implying that proSP-C becomes palmitoylated normally in a compartment distal to the ER.