Several soluble proteins that reside in the lumen of the ER contain a specific C-terminal sequence (KDEL) which prevents their secretion. This sequence may be recognized by a receptor that either immobilizes the proteins in the ER, or sorts them from other proteins at a later point in the secretory pathway and returns them to their normal location. To distinguish these possibilities, I have attached an ER retention signal to the lysosomal protein cathepsin D. The oligosaccharide side chains of this protein are normally modified sequentially by two enzymes to form mannose-6-phosphate residues; these enzymes do not act in the ER, but are thought to be located in separate compartments within (or near) the Golgi apparatus. Cathepsin D bearing the ER signal accumulates within the ER, but continues to be modified by the first of the mannose-6-phosphate forming enzymes. Modification is strongly temperature-dependent, which is also a feature of ER-to-Golgi transport. These results support the idea that luminal ER proteins are continuously retrieved from a post-ER compartment, and that this compartment contains N-acetylglucosaminyl-1-phosphotransferase activity.