Cathepsin E is a major nonlysosomal, intracellular aspartic proteinase that localizes in various cellular compartments such as the plasma membrane, endosome-like organelles, and the endoplasmic reticulum (ER). To learn the segregation mechanisms of cathepsin E into its appropriate cellular destinations, the present studies were initiated to define the biosynthesis, processing, and intracellular localization as well as the site of proteolytic maturation of the enzyme in primary cultures of rat brain microglia. Immunohistochemical and immunoblot analyses revealed that cathepsin E was the most abundant in microglia among various brain cell types, where the enzyme existed predominantly as the mature enzyme. Immunoelectron microscopy studies showed the presence of the enzyme predominantly in the endosome-like vacuoles and partly in the vesicles located in the trans-Golgi area and the lumen of ER. In the primary cultured microglial cells labeled with [35S]methionine, >95% of labeled cathepsin E were represented by a 46-kDa polypeptide (reduced form) after a 30-min pulse. Most of it was proteolytically processed via a 44-kDa intermediate to a 42-kDa mature form within 4 h of chase. This processing was completely inhibited by bafilomycin A1, a specific inhibitor of vacuolar-type H+-ATPase. Brefeldin A, a blocker for the traffic of secretory proteins from the ER to the Golgi complex, also inhibited the processing of procathepsin E and enhanced its degradation. Procathepsin E, after pulse-labeling, showed complete susceptibility to endoglycosidase H, whereas the mature enzyme almost acquired resistance to endoglycosidases H as well as F. The present studies provide the first evidence that cathepsin E in microglia is first synthesized as the inactive precursor bearing high-mannose oligosaccharides and processed to the active mature enzyme with complex-type oligosaccharides via the intermediate form and that the final proteolytic maturation step occurs in endosome-like acidic compartments.