Sulfatases contain a unique posttranslational modification in their active site, a formylglycine residue generated from a cysteine or a serine residue. The formylglycine residue is part of a sequence that is highly conserved among sulfatases, suggesting that it might direct the generation of this unique amino acid derivative. In the present study residues 68-86 flanking formylglycine 69 in arylsulfatase A were subjected to an alanine/glycine scanning mutagenesis. The mutants were analyzed for the conversion of cysteine 69 to formylglycine and their kinetic properties. Only cysteine 69 turned out to be essential for formation of the formylglycine residue, while substitution of leucine 68, proline 71, and alanine 74 within the heptapeptide LCTPSRA reduced the formylglycine formation to about 30-50%. Several residues that are part of or directly adjacent to an alpha-helix presenting the formylglycine 69 at the bottom of the active site pocket were found to be critical for catalysis. A surprising outcome of this study was that a number of residues fully or highly conserved between all known eukaryotic and prokaryotic sulfatases turned out to be essential neither for generation of formylglycine nor for catalysis.