The regulated sorting of proteins within the trans-Golgi network (TGN)/endosomal system is a key determinant of their biological activity in vivo. For example, the endoprotease furin activates of a wide range of proproteins in multiple compartments within the TGN/endosomal system. Phosphorylation of its cytosolic domain by casein kinase II (CKII) promotes the localization of furin to the TGN and early endosomes whereas dephosphorylation is required for efficient transport between these compartments (Jones, B.G., L. Thomas, S.S. Molloy, C.D. Thulin, M.D. Fry, K.A. Walsh, and G. Thomas. 1995. EMBO [Eur. Mol. Biol. Organ.] J. 14:5869-5883). Here we show that phosphorylated furin molecules internalized from the cell surface are retained in a local cycling loop between early endosomes and the plasma membrane. This cycling loop requires the phosphorylation state-dependent furin-sorting protein PACS-1, and mirrors the trafficking pathway described recently for the TGN localization of furin (Wan, L., S.S. Molloy, L. Thomas, G. Liu, Y. Xiang, S.L. Ryback, and G. Thomas. 1998. Cell. 94:205-216). We also demonstrate a novel role for protein phosphatase 2A (PP2A) in regulating protein localization in the TGN/endosomal system. Using baculovirus recombinants expressing individual PP2A subunits, we show that the dephosphorylation of furin in vitro requires heterotrimeric phosphatase containing B family regulatory subunits. The importance of this PP2A isoform in directing the routing of furin from early endosomes to the TGN was established using SV-40 small t antigen as a diagnostic tool in vivo. The role of both CKII and PP2A in controlling multiple sorting steps in the TGN/endosomal system indicates that the distribution of itinerant membrane proteins may be acutely regulated via signal transduction pathways.