We have investigated the mechanism by which LAMP-1, a principal protein of the lysosomal membrane, is targeted to lysosomes. Mutagenesis and transfection experiments indicate that the motif Tyr-X-X-hydrophobic residue at the carboxyl terminus of the 11-amino acid cytoplasmic tail of the protein constitutes the lysosomal targeting signal for LAMP-1. This motif directs CD44, a cell surface hyaluronate receptor, to the lysosomal membrane, but only when the signal is placed at the carboxyl-terminus of a truncated cytoplasmic tail. The signal did not confer lysosomal targeting when it was situated internally or at the carboxyl terminus of the normal CD44 cytoplasmic tail. An apparent paradox is that similar Tyr-containing sequences mediate internalization, but not lysosomal targeting, of several receptors. Of possible relevance is the additional finding that purified LAMP-1 protein lacks the two carboxyl-terminal residues predicted by cDNA, both of which are essential for proper trafficking. A model is proposed in which lysosomal targeting is distinguished from receptor internalization through proteolytic modification of the internalization signal.