Surfactant protein C (SP-C) is a 3.7 kDa, hydrophobic protein that enhances the adsorption of phospholipids in pulmonary surfactant. SP-C is generated by proteolytic processing of a 21 kDa precursor. Murine fetal lung explant cultures and a Chinese hamster ovary cell line expressing recombinant human SP-C gene (CHO/SPC) were used to determine the subcellular location and post-translational modification(s) of proSP-C. After in vitro translation, proSP-C of Mr = 21,000 was generated. ProSP-C was associated with canine pancreatic microsomes during co-translation and was partially protected from digestion with proteinase K, supporting the concept that proSP-C enters but does not completely traverse the membrane of the endoplasmic reticulum (ER). Association of proSP-C isoforms of 21 and 26 kDa with intracellular membranes was demonstrated by subcellular fractionation of CHO/SPC cells. Pulse/chase experiments demonstrated that the 21 kDa SP-C proprotein was synthesized first and after 15 min was modified to produce a 26 kDa isoform in CHO/SPC cells or a 24 kDa isoform in murine fetal lung. Both the 21 and 26 kDa proSP-C isoforms were detected after labelling CHO/SPC cells with [3H]palmitic acid. The formation of the 26 kDa proSP-C isoform in CHO/SPC cells and the 24 kDa proSP-C isoform in murine fetal lung was blocked by cerulenin, an inhibitor of fatty acid synthesis. In conclusion, proSP-C is associated with subcellular membranes. ProSP-C is palmitoylated and undergoes additional post-translational modification that is blocked by an inhibitor of fatty acid synthesis.