The recycling of secretory granule membrane proteins that reach the plasma membrane following exocytosis is poorly understood. As a model, peptidylglycine alpha-amidating monooxygenase (PAM), a granule membrane protein that catalyzes a final step in peptide processing was examined. Ultrastructural analysis of antibody internalized by PAM and surface biotinylation showed efficient return of plasma membrane PAM to secretory granules. Electron microscopy revealed the rapid movement of PAM from early endosomes to the limiting membranes of multivesicular bodies and then into intralumenal vesicles. Wheat germ agglutinin and PAM antibody internalized simultaneously were largely segregated when they reached multivesicular bodies. Mutation of basally phosphorylated residues (Thr(946), Ser(949)) in the cytoplasmic domain of PAM to Asp (TS/DD) substantially slowed its entry into intralumenal vesicles. Mutation of the same sites to Ala (TS/AA) facilitated the entry of internalized PAM into intralumenal vesicles and its subsequent return to secretory granules. Entry of PAM into intralumenal vesicles is also associated with a juxtamembrane endoproteolytic cleavage that releases a 100-kDa soluble PAM fragment that can be returned to secretory granules. Controlled entry into the intralumenal vesicles of multivesicular bodies plays a key role in the recycling of secretory granule membrane proteins.