Surfactant protein C (SP-C) is a lung-specific protein that is synthesized as a 21-kDa integral membrane propeptide (pro-SP-C) and proteolytically processed to a 3.7-kDa secretory product. Previous studies have shown that palmitoylation of pro-SP-C is dependent on two N-terminal juxtamembrane positively charged residues. We hypothesized that these residues influence modification of pro-SP-C by directing transmembrane orientation. Double substitution mutation of these juxtaposed residues from positive to neutral charged species resulted in complete reversal of transmembrane orientation of pro-SP-C and total abrogation of post-translational processing. Mutation of a single residue resulted in mixed orientation. Protein trafficking studies in A549 cells showed that while the double mutant was retained in the endoplasmic reticulum, single mutants produced a mixed pattern of both endoplasmic reticulum (double mutant-like) and vesicular (wild type-like) expression. Our study demonstrates the crucial role juxtamembrane positively charged residues play in establishing membrane topology and their influence on the trafficking and processing of pro-SP-C. Moreover this study provides a likely precedent for a mechanism in disorders associated with mutations in the membrane-flanking region of integral membrane proteins.