We have isolated and sequenced human cDNA and mouse genomic DNA clones encoding N-acetylglucosamine-1-phosphodiester alpha-N-acetylglucosaminidase (phosphodiester alpha-GlcNAcase) which catalyzes the second step in the synthesis of the mannose 6-phosphate recognition signal on lysosomal enzymes. The gene is organized into 10 exons. The protein sequence encoded by the clones shows 80% identity between human and mouse phosphodiester alpha-GlcNAcase and no homology to other known proteins. It predicts a type I membrane-spanning glycoprotein of 514 amino acids containing a 24-amino acid signal sequence, a luminal domain of 422 residues with six potential N-linked glycosylation sites, a single 27-residue transmembrane region, and a 41-residue cytoplasmic tail that contains both a tyrosine-based and an NPF internalization motif. Human brain expressed sequence tags lack a 102-base pair region present in human liver cDNA that corresponds to exon 8 in the genomic DNA and probably arises via alternative splicing. COS cells transfected with the human cDNA expressed 50-100-fold increases in phosphodiester alpha-GlcNAcase activity proving that the cDNA encodes the subunits of the tetrameric enzyme. Transfection with cDNA lacking the 102-base pair region also gave active enzyme. The complete genomic sequence of human phosphodiester alpha-GlcNAcase was recently deposited in the data base. It showed that our cDNA clone was missing only the 5'-untranslated region and initiator methionine and revealed that the human genomic DNA has the same exon organization as the mouse gene.