Human lactase-phlorizin hydrolase (EC 3.2.1.23/62) is a major disaccharidase in the microvillus membrane of small intestinal epithelial cells. The enzyme is synthesized as a single-chain precursor protein and undergoes proteolytic processing during maturation. We studied proteolytic processing of human lactase-phlorizin hydrolase in transfected COS-1, Caco-2, and MDCK cells using metabolic labeling, surface immunoprecipitation, protease sensitivity assays, and microsequencing. Furthermore, we generated mutated forms of the enzyme to alter potential proteolytic cleavage sites and expressed these in Caco-2 and COS-1 cells. Since the N-terminal amino acid of microvillus lactase-phlorizin hydrolase corresponds to Ala869 in the precursor protein, it has been speculated that processing occurs at position Arg868-Ala869. Substitution of Arg868 with isoleucine, lysine, or glutamic acid had no effect on the proteolytic processing of pro-LPH in Caco-2 cells. As in wild-type enzyme a processed 160-kDa form was generated. These data are not consistent with a primary proteolytic processing at position Arg868-Ala869. Using amino-terminal amino acid sequencing of this processed form isolated from stable transfected MDCK cells we identified the cleavage site at Arg734-Leu735. Treatment of pro-lactase-phlorizin hydrolase expressed in COS-1 and MDCK cells by trypsin yielded a 145-kDa form with an identical amino terminal as the mature microvillus enzyme isolated from intestinal mucosa (Ala869). These data provide unambiguous evidence of a two-step processing of human lactase-phlorizin hydrolase. The first cleavage occurs intracellularly after a dibasic site (Arg734-Leu735) and yields the 160-kDa intermediate form. In a second step the intermediate form inserted into the microvillus membrane is trimmed to the mature enzyme by luminal trypsin.