Signal peptidase removes amino-terminal signal peptides from precursor proteins during or immediately following their translocation to the lumen of the endoplasmic reticulum (ER) and may participate in ER degradation, a poorly defined process whereby abnormal proteins are rapidly degraded early in the secretory pathway. Here, the involvement of signal peptidase in ER degradation is examined through the use of two chimeric membrane proteins that lack amino-terminal signal peptides: A189invHD, which contains sequences derived from arginine permease and histidinol dehydrogenase, and AHDK2, containing the ER-resident protein Kar2p fused to the carboxyl terminus of A189invHD. Degradation of approximately 95% of A189invHD is observed in yeast cells expressing enzymatically active signal peptidase, whereas only 60% undergoes rapid degradation in a sec11 mutant bearing a temperature-sensitive mutation in the gene encoding the 18-kDa subunit (Sec11p) of the signal peptidase complex. AHDK2 is proteolyzed in a reaction yielding at least two fragments in wild-type cells and in the sec11 mutant containing a plasmid bearing the SEC11 gene. The proteolytic reaction is catalyzed in a temperature-dependent manner in the sec11 mutant, with AHDK2 remaining stable at the nonpermissive temperature. Using conditional mutants defective in protein translocation into and out of the ER and in vitro protease protection studies, the site of degradation for AHDK2 is localized to the ER lumen. The data therefore indicate (i) A189invHD is degraded through both signal peptidase-dependent and independent processes; (ii) signal peptidase, specifically the Sec11p subunit, is required for the proteolysis of AHDK2; and (iii) the Kar2 fragment at the carboxyl terminus of AHDK2 permits detection of proteolytic intermediates.