Lysosomal beta-D-galactosidase (beta-gal), the enzyme deficient in the autosomal recessive disorders G(M1) gangliosidosis and Morquio B, is synthesized as an 85-kDa precursor that is C-terminally processed into a 64-66-kDa mature form. The released approximately 20-kDa proteolytic fragment was thought to be degraded. We now present evidence that it remains associated to the 64-kDa chain after partial proteolysis of the precursor. This polypeptide was found to copurify with beta-gal and protective protein/cathepsin A from mouse liver and Madin-Darby bovine kidney cells and was immunoprecipitated from human fibroblasts but not from fibroblasts of a G(M1) gangliosidosis and a galactosialidosis patient. Uptake of wild-type protective protein/cathepsin A by galactosialidosis fibroblasts resulted in a significant increase of mature and active beta-gal and its C-terminal fragment. Expression in COS-1 cells of mutant cDNAs encoding either the N-terminal or the C-terminal domain of beta-gal resulted in the synthesis of correctly sized polypeptides without catalytic activity. Only when co-expressed, the two subunits associate and become catalytically active. Our results suggest that the C terminus of beta-gal is an essential domain of the catalytically active enzyme and provide evidence that lysosomal beta-galactosidase is a two-subunit molecule. These data may give new significance to mutations in G(M1) gangliosidosis patients found in the C-terminal part of the molecule.