The subcellular localization and functionality of transfected yeast aspartic protease 3 (YAP3p) in a mammalian cell line were investigated. The complementary DNAs encoding the prohormone-processing enzyme (YAP3p) and a prohormone, bovine POMC, were cotransfected into PC12 (rat pheochromocytoma) cells. Immunocytochemical analysis of the cells using a YAP3p antibody showed a perinuclear punctate distribution of YAP3p in the cell body as well as immunostaining in the tips of the neurites. This pattern of immunostaining indicates localization of YAP3p in secretory granules. Analysis of the processing of POMC showed that in cells transfected with the POMC complementary DNA alone, only POMC was found, indicating a lack of processing of the prohormone. However, in cells coexpressing YAP3p, the POMC was completely processed to yield ACTH-(1-39) and ACTH-(1-14), consistent with the specificity of YAP3p found in vitro. Pulse-chase studies showed that POMC was processed after 20 min of chase, suggesting that processing occurred in the late Golgi network and continued in the secretory granules. Western blot analysis determined that YAP3p was secreted from the cells in a regulated manner. This study provides the first demonstration that a yeast prohormone-processing enzyme (YAP3p) of the aspartic protease class can be sorted correctly to secretory granules and activated to process a prohormone (POMC) in a highly efficient manner in mammalian cells.