Soluble luminal proteins of the endoplasmic reticulum (ER) are known to be retained by a tetrapeptide retention signal, KDEL. We report in this communication that the KDEL sequence when appended to the carboxy terminus of a cell surface membrane protein, dipeptidyl peptidase IV (DPPIV), resulted in its retention in the endoplasmic reticulum of transfected Madin-Darby canine kidney cells as assessed by indirect immunofluorescence. Selective surface biotinylation revealed that about 90-95% of the expressed DPPIV was retained in the ER. Appendance of the sequence KDEV did not, however, result in ER retention, illustrating the functional specificity of the retention signal. The ER retention was not due to misfolding of the mutant protein, as the mutant proteins remained enzymatically active. Our data suggest that the KDEL receptor is able to recognize and recycle type II membrane proteins containing a carboxyl-terminal KDEL sequence and postulates the existence of such yet to be identified endogenous proteins.