The Ras converting enzyme (RCE) promotes a proteolytic activity that is required for the maturation of Ras, the yeast a-factor mating pheromone, and certain other proteins whose precursors bear a C-terminal CaaX tetrapeptide motif. Despite the physiological importance of RCE, the enzymatic mechanism of this protease remains undefined. In this study, we have evaluated the substrate specificity of RCE orthologs from yeast (Rce1p), worm, plant and human, and have determined the importance of conserved residues toward enzymatic activity. Our findings indicate that RCE orthologs have conserved substrate specificity, cleaving CVIA, CTLM, and certain other CaaX motifs, but not the CASQ motif, when these motifs are placed in the context of the yeast a-factor precursor. Our mutational studies of residues conserved between the orthologs indicate that an alanine substitution at H194 completely inactivates yeast Rce1p enzymatic activity, while a substitution at E156 or H248 results in marginal activity. We have also determined that residues E157, Y160, F190, and N252 impact the substrate selectivity of Rce1p. Computational methods predict that residues influencing Rce1p function are all near or within hydrophobic segments. Combined, our data indicate that yeast Rce1p function requires residues that are invariably conserved among an extended family of prokaryotic and eukaryotic enzymes, and that these residues are likely to lie within or immediately adjacent to the transmembrane segments of this membrane-localized enzyme.