Membrane lipid biosynthesis is a complex process that takes place in various intracellular compartments. Glycosylphosphatidylinositol (GPI), a lipid involved in membrane anchoring of some proteins, is synthesized by the PIG enzymes. Most PIGs are localized to the endoplasmic reticulum (ER), but Drosophila PIG-B (DmPIG-B) is localized to the nuclear envelope (NE). To determine whether NE localization of DmPIG-B is functionally important, we defined the determinants of localization and generated an ER-localized form, DmPIG-B[ER]. Enzymatic activity of DmPIG-B[ER] was comparable to that of NE-localized DmPIG-B[NE]. Expression of DmPIG-B[ER] inefficiently rescued the lethality of the PIG-B mutant, whereas DmPIG-B[NE] rescued fully. DmPIG-B[ER] was preferentially degraded by lysosomes, suggesting that NE localization is essential for the protein's function and stability. In addition, we found that the region of the ER proximal to the NE is the site of translation of GPI-anchored proteins and addition of GPI. Thus, the NE and proximal ER may provide a platform for efficient GPI anchoring.