Mannose 6-phosphate-modified N-glycans are the determinant for intracellular targeting of newly synthesized lysosomal hydrolases to the lysosome. The enzyme responsible for the initial step in the synthesis of mannose 6-phosphate is UDP-N-acetylglucosamine:lysosomal-enzyme-N-acetylglucosmine-1-phosphotransferase(GlcNAc-phosphotransferase). GlcNAc-phosphotransferase is a multisubunit enzyme with an alpha2beta2gamma2 arrangement that requires a detergent for solubilization. Recent cloning of cDNAs and genes encoding these subunits revealed that the alpha- and beta-subunits are encoded by a single gene as a precursor, whereas the gamma-subunit is encoded by a second gene. The hydropathy plots of the deduced amino acid sequences suggested that the alpha- and beta-subunits but not the gamma-subunit contain transmembrane domains. Access to these cDNAs allowed us to express a soluble form of human recombinant GlcNAc-phosphotransferase by removing the putative transmembrane and cytoplasmic domains from the alpha- and beta-subunits. Because this modification prevented precursor processing to mature alpha- and beta-subunits, the native cleavage sequence was replaced by a cleavage site for furin. When the modified alpha/beta-subunits (alpha'/beta'-subunits) precursor and wild type gamma-subunit cDNAs were co-expressed in 293T or CHO-K1 cells, a furin-like protease activity in these cells cleaved the precursor and produced an active and processed soluble GlcNAc-phosphotransferase with an alpha'2beta'2gamma2-subunits arrangement. Recombinant soluble GlcNAc-phosphotransferase exhibited specific activity and substrate preferences similar to the wild type bovine GlcNAc-phosphotransferase and was able to phosphorylate a lysosomal hydrolase, acid alpha-glucosidase in vitro.