Pulmonary surfactant protein C (SP-C) is a 35 amino acid protein which participates in the reduction of surface tension at the alveolar air/liquid interface. The primary sequence of mature SP-C (SP-C3.7) contains a transmembrane α-helical region and is one of the most hydrophobic amino acid domains known. We have demonstrated previously that SP-C3.7 is derived from post-translational proteolytic processing of a 21 kD propeptide(proSP-C21) by sequential removal of C- and N-terminal flanking domains in subcellular compartments distal to the medial-Golgi. ProSP-C21 does not contain a signal sequence and the events regulating its targeting to processing sites in the distal secretory pathway are unknown. We hypothesized that sequences within the N-terminal and C-terminal flanking domains of proSP-C21 are required for intracellular targeting and proteolysis. Trafficking of SP-C was investigated in human A549 cells using transfection of a CMV driven mammalian expression vector encoding for heterologous chimeric fusion proteins consisting of green fluorescent protein (GFP) attached to the NH2 terminus of either wild type rat SP-C (SP-C1-194) or mutant proSP-C truncated at either the NH2 terminus (SP-C24-194) or COOH terminus (SP-C1-175). Vital fluorescence microscopy of transfected A549 cells revealed that chimeric constructs containing GFP/SP-C1-194 were expressed in a punctate pattern in cytoplasmic vesicles throughout the cell while GFP/SP-C1-175 and GFP/SP-C24-194 were each restricted to ER/Golgi compartments. Control plasmids containing only GFP or a chimeric protein GFP/SP-C175-194 each produced a nonspecific, diffuse intracellular fluorescence pattern. The targeting of proSP-C21 to cytoplasmic vesicles was associated with proteolytic processing.35 S-met/cys pulsechase labeling and immunoprecipitation of A549 cells transfected with SP-C1-194 demonstrated synthesis of35 S-proSP-C21 with subsequent proteolysis to known SP-C intermediates. In contrast, SP-C1-175 and SP-C24-194 each generated truncated 35S-labeled translation products which were degraded without evidence of processing. We conclude that proSP-C domains Met1-Glu23 and Leu175-Ile194 are each necessary but not sufficient for its translocation from proximal compartments to more distal sites of subsequent post-translational proteolytic processing. We speculate that these two regions influence SP-C processing either through independent participation in nascent protein folding in the ER or by acting together as a functional targeting signal. Other regions containing additional intracellular targeting determinants may localized within more proximal portions of the proSP-C C-terminus or within the mature SP-C sequence.