Carcinoembryonic antigen (CEA) is released from colon cancer cells into the circulation where it is monitored clinically as an indicator of the recurrence or progression of cancer. We have studied the mechanism of CEA membrane attachment and release using the human colonic adenocarcinoma cell line LS-174T, specimens of human colon cancers, and serum from colon cancer patients. CEA release by cells in vitro and in vivo is associated with the conversion of CEA from a membrane-bound, hydrophobic molecule to a soluble, hydrophilic form with no apparent decrease in molecular mass. When LS-174T cell membranes were incubated with various buffers, proteases, and phospholipases, the only agents that released CEA and converted it to the hydrophilic form were preparations of phosphatidylinositol-specific phospholipase C (PI-PLC). Both [3H]ethanolamine and [3H]palmitate could be incorporated metabolically into CEA but only palmitate was released by treatment with PI-PLC, consistent with the presence of a glycosyl-phosphatidylinositol linkage. PI-PLC treatment also release significant quantities of CEA from living monolayers and from seven human colon cancer specimens. These experiments suggest that cellular CEA is anchored to membranes by a covalent linkage to a membrane phosphatidylinositol molecule, and that an endogenous phospholipase may be important for releasing CEA in vitro and in vivo.