Carboxypeptidase E (CPE) functions as a regulated secretory pathway sorting receptor for several prohormones, including pro-opiomelanocortin (POMC), proenkephalin and proinsulin. The association of CPE with lipid rafts in the trans -Golgi network and secretory granule membranes is necessary for its sorting receptor function. We now provide evidence that a domain within the C-terminal 25 residues of CPE functions as a signal for both raft association and the sorting of CPE to the regulated secretory pathway. A fusion protein containing the extracellular domain of the human interleukin-2 receptor Tac (N-Tac) and the C-terminal 25 amino acids of CPE was transfected into Neuro2A cells. This fusion protein floated in sucrose density gradients, indicating raft association, and co-localized with chromogranin A (CGA), a secretory granule marker. To define further a minimum sequence required for raft association and sorting, deletion mutants of CPE that lacked the C-terminal four or 15 residues (CPE-Delta4 and CPE-Delta15 respectively) were transfected into a clone of CPE-deficient Neuro2A cells. In contrast with full-length CPE, neither CPE-Delta4 nor CPE-Delta15 floated in sucrose density gradients. The sorting of both CPE-Delta4 and CPE-Delta15 to the regulated secretory pathway was impaired, as indicated by significantly increased basal secretion and a lack of response to stimulation. Additionally, there was a significant decrease in the co-localization of mutant CPE immunofluorescence with CGA when compared with full-length CPE. Finally, the sorting of the prohormone POMC to the regulated pathway was impaired in cells transfected with either CPE-Delta4 or CPE-Delta15. We conclude that the sorting of CPE to the regulated secretory pathway in endocrine cells is mediated by lipid rafts, and that the C-terminal four residues of CPE, i.e. Thr(431)-Leu-Asn-Phe(434), are required for raft association and sorting.