Little is known about the enzyme(s) required for the endoproteolytic processing of mammalian Ras proteins. We identified a mouse gene (designated Rce1) that shares sequence homology with a yeast gene (RCE1) implicated in the proteolytic processing of Ras2p. To define the role of Rce1 in mammalian Ras processing, we generated and analyzed Rce1-deficient mice. Rce1 deficiency was lethal late in embryonic development (after embryonic day 15.5). Multiple lines of evidence revealed that Rce1-deficient embryos and cells lacked the ability to endoproteolytically process Ras proteins. First, Ras proteins from Rce1-deficient cells migrated more slowly on SDS-polyacrylamide gels than Ras proteins from wild-type embryos and fibroblasts. Second, metabolic labeling of Rce1-deficient cells revealed that the Ras proteins were not carboxymethylated. Finally, membranes from Rce1-deficient fibroblasts lacked the capacity to proteolytically process farnesylated Ha-Ras, N-Ras, and Ki-Ras or geranylgeranylated Ki-Ras. The processing of two other prenylated proteins, the farnesylated Ggamma1 subunit of transducin and geranylgeranylated Rap1B, was also blocked. The absence of endoproteolytic processing and carboxymethylation caused Ras proteins to be mislocalized within cells. These studies indicate that Rce1 is responsible for the endoproteolytic processing of the Ras proteins in mammals and suggest a broad role for this gene in processing other prenylated CAAX proteins.