Surfactant protein C (SP-C) is synthesized by alveolar type II cells as a 21-kDa propeptide (proSP-C-21) which is proteolytically processed in subcellular compartments distal to the trans-Golgi network to yield a 35-residue mature form, Initial synthetic processing events for SP-C include post-translational cleavages of the COOH terminus of proSP-C-21, yielding two intermediates (16 and 6 kDa). To test the role of specific COOH-terminal domains in intracellular targeting and proteolysis of proSP-C-21, synthesis and processing of SP-C was evaluated using a lung epithelial cell line (A549) transfected with a eukaryotic expression vector containing either the full-length cDNA for rat SP-C (SP-C-wt) or one of six polymerase chain reaction (PCR)-generated COOH terminally truncated forms (Sp-C1-185, SP-C1-175, SP-C1-147, Sp-C1-120, SP-C1-72, and SP-C1-59), Using in vitro transcription/translation, each of the seven constructs produced a S-35-labeled product of appropriate length which could be immunoprecipitated by epitope specific proSP-C antisera, Immunoprecipitation of S-35-labeled A549 cell lysates from SP-C-wt transfectants demonstrated rapid synthesis of [S-35]proSP-C-21 with processing to SP-C-16 and SP-C-6 intermediates via cleavages of the COOH-terminal propeptide. Both the intermediates as well as the kinetics of processing in A549 cells were similar to that observed in rat type II cells. In contrast, constructs SP-C1-185, SP-C1-175, SP-C1-147, SP-C1-120, SP- C1-72, and SP-C1-59 were each translated but degraded without evidence of proteolytic processing. Fluorescence immunocytochemistry identified proSP-C-wt in cytoplasmic vesicles of A549 cells while all COOH-terminal deletional mutants were restricted to an endoplasmic reticulum/Golgi compartment identified by co-localization with fluorescein isothiocyanate-concanavalin A. We conclude that SP-C-wt expressed in A549 cells is directed to cytoplasmic vesicles where it is proteolytically processed in a manner similar to native type II cells and that amino acids Cys(186)-Ile(194) located at the COOH terminus of proSP-C-21 are necessary for correct intracellular targeting and subsequent cleavage events.