Two Ras-related proteins, ERas and Rheb, which are involved in the phosphatidylinositol 3-kinase pathway, display high GTP affinity and have atypical CAAX motifs. The factors governing the intracellular localization of ERas and Rheb are incompletely understood. In the current study, we show by confocal microscopy that ERas is localized to the plasma membrane, whereas Rheb is confined to the endomembranes. Membrane localization of the two proteins was abolished by mutation of the cysteine of the CAAX motif. Membrane targeting was also abolished by a farnesyltransferase inhibitor but not by a geranylgeranyltransferase inhibitor. In mouse fibroblasts deficient in either Rce1 (Ras converting enzyme 1) or Icmt (isoprenylcysteine carboxyl methyltransferase), ERas was mislocalized mainly to the Golgi apparatus, whereas Rheb showed diffuse localization. Mutation of cysteines in the hypervariable region of ERas prevented the plasma membrane localization of ERas, very strongly suggesting that palmitoylation of the cysteines is essential for membrane targeting. The hypervariable region of Rheb does not contain cysteines or polybasic residues, and when it was replaced with the hypervariable region of H-Ras, Rheb displayed plasma membrane localization. These data indicate that ERas shares the same posttranslational modifications with H-Ras and N-Ras and is localized at the plasma membrane. Rheb also shares the same membrane-targeting pathway but because of the absence of palmitoylation is located on endomembranes.