Glycosylphosphatidylinositol (GPI) linkage is a fairly common means of anchoring membrane proteins to eukaryotic cells, although the exact function of the GPI linkage is not clear. The nascent form of a typical GPI protein contains a hydrophobic NH2-terminal signal peptide that directs it to the ER. There the signal peptide is removed by NH2-terminal signal peptidase. Nascent forms of GPI-linked proteins contain a second hydrophobic peptide at their COOH terminus. The COOH-terminal peptide is also removed during processing and the GPI moiety is ultimately linked to what had been an internal sequence in the nascent protein. Two independent pathways are involved in the biosynthesis of GPI proteins, GPI formation, and processing of the nascent protein with attachment of the GPI moiety. Studies in whole cells and in cell-free systems indicate that structural requirements around the COOH-terminal cleavage site of nascent proteins are similar to those at the cleavage site of NH2-terminal signal peptidase. However, COOH-terminal processing requires a transmidase for which evidence is presented as well as a proposed mechanism of its action.