Although considerable evidence implicates insulin-degrading enzyme (IDE) in the cellular metabolism of insulin in many cell types, its mechanism and site of action are not clear. In this study, we have examined the relationship between insulin-degrading enzyme's peroxisomal location and its ability to degrade insulin by mutation of its peroxisomal targeting signal (PTS), the carboxy terminal A/S-K-L tripeptide. Site-directed mutagenesis was used to destroy the peroxisomal targeting signal of human insulin-degrading enzyme by changing alanine to leucine (AL.pts), leucine to valine (LV.pts), or by deleting the entire tripeptide (DEL.pts). The alanine or leucine mutants, when expressed in COS cells, were indistinguishable from wild-type insulin-degrading enzyme with respect to size (110 kDa), amount of immunoreactive material, ability to bind insulin, in vitro activity, and cellular degradation of insulin. In contrast, the deletion mutant was shorter in size (approximately 0 kDa) and unable to bind the hormone. Thus, although the tripeptide at insulin-degrading enzyme's carboxy terminus appeared to confer enzyme stability, the conserved sequence was not required for insulin degradation. Finally, an immunocytofluorescence study showed that, whereas a significant amount of the wild-type protein was localized in peroxisomes, none of the peroxisomal targeting mutants could be detected in these organelles. These findings indicate that insulin-degrading enzyme does not require peroxisomal localization for insulin degradation and suggest that this enzyme has multiple cellular functions.