Carbonic anhydrase IV (CA IV) is a glycosylphosphatidylinositol (GPI)-anchored membrane protein expressed on the plasma membrane of specific epithelial and endothelial cells. The human cDNA encodes a 312-amino-acid precursor which includes an NH2-terminal signal sequence (residues -18 to -1) that is removed and a C-terminal hydrophobic domain which is cleaved to permit transfer to the GPI anchor. Using biochemical methods, we established that Ser266 is the site of attachment of the GPI anchor to CA IV from human lung. Based on this result, we constructed missense mutants S266F and G267F and a truncation mutant, G267X, and investigated the role of removal of the C-terminal hydrophobic domain on the synthesis and processing of CA IV in transfected COS cells. The G267F mutation had no effect on CA IV expression. By contrast, the S266F mutation prevented removal of the C-terminal domain and the S266F CA IV was inactive, not GPI-anchored, and not expressed on the cell surface. The G267X C-terminal deletion mutation resulted in secretion of an amount of CA IV severalfold higher than the amounts found in cells transfected with wild type cDNA. These results demonstrate that removal of the C-terminal hydrophobic domain is necessary both for GPI anchoring and for realization of CA IV activity. They further show that bypassing C-terminal processing by deletion of the hydrophobic domain leads to secretion of a fully active CA IV in amounts far greater than those which accumulate in cells expressing the wild type, GPI-anchored CA IV.