Sorting of the prohormone POMC to the regulated secretory pathway necessitates the binding of a sorting signal to a sorting receptor, identified as membrane carboxypeptidase E (CPE). The sorting signal, located at the N terminus of POMC consists of two acidic (Asp10,Glu14) and two hydrophobic (Leu11, Leu18) residues exposed on the surface of an amphipathic loop. In this study, molecular modeling of CPE predicted that the acidic residues in the POMC-sorting signal bind specifically to two basic residues, Arg255 and Lys260, present in a loop unique to CPE, compared with other carboxypeptidases. To test the model, these two residues on CPE were mutated to Ser or Ala, followed by baculovirus expression of the mutant CPEs in Sf9 cells. Sf9 cell membranes containing CPE mutants with either Arg255 or Lys260, or both residues substituted, showed no binding of [125I]N-POMC1−26 (which contains the POMC-sorting signal motif), proinsulin, or proenkephalin. In contrast, substitution of an Arg147 to Ala147 at a substrate-binding site, Arg 259 to Ala259 and Ser202 to Pro202, in CPE did not affect the level of [125I]N-POMC1−26 binding when compared with-wild type CPE. Furthermore, mutation of the POMC-sorting signal motif (Asp10, Leu11, Glu14, Leu18) eliminated binding to wild-type CPE. These results indicate that the sorting signal of POMC, proinsulin, and proenkephalin specifically interacts with Arg255 and Lys260 at a novel binding site, independent of the active site on CPE.