ABCA4 is an ATP-binding cassette transporter that is expressed in rod and cone photoreceptor cells and implicated in the removal of retinal derivatives from outer segments following photoexcitation. Mutations in the ABCA4 gene are responsible for a number of related retinal degenerative diseases, including Stargardt macular degeneration, cone-rod dystrophy, retinitis pigmentosa, and age-related macular degeneration. In order to determine the role of the C terminus of ABCA4 in protein structure and function and understand mechanisms by which C-terminal mutations cause retinal degenerative diseases, we have expressed and purified a series of deletion and substitution mutants of ABCA4 and ABCA1 in HEK 293T cells for analysis of their cellular localization and biochemical properties. Removal of the C-terminal 30 amino acids of ABCA4, including a conserved VFVNFA motif, resulted in a loss in N-retinylidene-phosphatidylethanolamine substrate binding, ATP photoaffinity labeling, and retinal-stimulated ATPase activity. This mutant was also retained in the endoplasmic reticulum of cells. Replacement of the VFVNFA motif with alanine residues also resulted in loss in function and cellular mislocalization. In contrast, C-terminal deletion mutants that retain the VFVNFA motif were functionally active and localized to intracellular vesicles similar to wild-type ABCA4. Our studies indicated that the VFVNFA motif is required for the proper folding of ABCA4 into a functionally active protein. This motif also contributes to the efficient folding of ABCA1 into an active protein. Our results provide a molecular based rationale for the disease phenotype displayed by individuals with mutations in the C terminus of ABCA4.