We have isolated cis-acting mutations in the gene encoding the yeast vacuolar protein carboxypeptidase Y (CPY) that result in missorting and aberrant secretion of up to 95% of newly synthesized CPY. The CPY polypeptides synthesized by these mutants use the late secretory pathway to exit the cell, since the late-acting sec1 mutation prevents their secretion. The mutant versions of CPY are secreted as the proCPY zymogen and are enzymatically activatable in vivo and in vitro. All the mutations, including small deletions and an amino acid substitution, map to the amino-terminal propeptide region and define a discrete yeast vacuolar localization domain whose integrity is required for efficient sorting of the CPY zymogen. Thus, the N-terminal propeptide of CPY carries out at least three functions: it mediates translocation across the endoplasmic reticulum, renders the enzyme inactive during transit, and targets the molecule to the vacuole.