Abstract. In the yeast Saccharomyces cerevisiae, the carboxyl terminal sequence His-Asp-Glu-Leu (HDEL) has been shown to function as an ER retention sequence (Pelham, H. R. B., K. G. Hardwick, and M. J. Lewis. 1988. EMBO (Eur. Mol. Biol. Organ.) J. 7:1757-1762). To examine the mechanism of retention of soluble ER proteins in yeast, we have analyzed the expression of a preproalpha factor fusion protein, tagged at the carboxyl terminus with the HDEL sequence. We demonstrate that this fusion protein, expressed in vivo, accumulates intracellularly as a precursor containing both ER and Golgi-specific oligosaccharide modifications. The Golgi-specific carbohydrate modification, which occurs in a SEC18-dependent manner, consists of t~l-6 mannose linkages, with no detectable otl-3 mannose additions, indicating that the transit of the HDEL-tagged fusion protein is confined to an early Golgi compartment. Results obtained from the fractionation of subcellular organelles from yeast expressing HDEL-tagged fusion proteins suggest that the Golgi-modified species are present in the ER. Overexpression of HDEL-tagged preproalpha factor results in the secretion of an endogenous HDEL-containing protein, demonstrating that the HDEL recognition system can be saturated. These results support the model in which the retention of these proteins in the ER is dependent on their receptor-mediated recycling from the Golgi complex back to the ER.T HE complex organization of eukaryotic cells requires mechanisms that direct proteins from their site of synthesis to their site of function. Most secreted and membrane bound proteins are initially directed to the secretory pathway by their cotranslational translocation into the ER. While most of these proteins are subsequently routed to the Golgi body and eventually compartmentalized or secreted, certain proteins remain and function in the ER. Many of the soluble ER proteins in mammalian cells bear a carboxy terminal tetrapeptide sequence, Lys-Asp-Glu-Leu (KDEL), which has been demonstrated to be both necessary and sufficient for the retention of at least one of these proteins (BiP) in the ER (Munro and Pelham, 1987). The growing list of luminal ER proteins that bear this sequence (for review, see Pelham, 1989) implicate it as the distinctive feature that signals retention in the ER.While it is clear that the KDEL sequence functions as an ER retention signal, the mode by which the cellular secretory apparatus recognizes it is less clearly understood. The current model favored for the accumulation of luminal ER proteins envisages a recycling mechanism, in which these proteins are retrieved from a post-ER compartment. The best evidence for this model comes from experiments in animal cells, where it was shown that cathepsin D-KDEL fusion proteins are accessible to post-ER enzymes, and yet accumulate in the ER (Pelham, 1988).Analyses of many aspects of the secretory pathway in the yeast, Saccharomyces cerevisiae, indicate a high degree of conservation with higher eukaryotes. Rather than the sequence ...