We previously proposed a model of surfactant protein (SP)-C biosynthesis in which internalization of the proprotein from the limiting membrane of the multivesicular body to internal vesicles represents a key step in the processing and secretion of SP-C. To test this hypothesis, alanine mutagenesis of the N-terminal propeptide of SP-C was performed. Adenoviruses encoding mutant proproteins were infected into type II cells isolated from Sftpc(-/-) mice, and media analyzed for secreted SP-C 24 hours after infection. Mutation of S(12)PPDYS(17) completely blocked secretion of SP-C. PPDY (PY motif) has previously been shown to bind WW domains of neural precursor cell-expressed developmentally down-regulated (Nedd) 4-like E3 ubiquitin ligases. Purified recombinant glutathione S-transferase-SP-C propeptide (residues 1-35) bound recombinant Nedd4-2 strongly, and Nedd4 weakly; the S(12)PPDYS(17)mutation abrogated binding of SP-C to Nedd4-2. Immobilized recombinant Nedd4-2 WW domain captured SP-C proprotein from mouse type II cell lysates; in the reverse pulldown, endogenous SP-C in type II cells was captured by recombinant Nedd4-2. To determine if the interaction of Nedd4-2 and SP-C resulted in ubiquitination, the SP-C proprotein was immunoprecipitated from transiently transfected human embryonic kidney 293 cells, and analyzed by SDS-PAGE/Western blotting with ubiquitin antibody. Two ubiquitinated forms of SP-C were detected; ubiquitination was blocked by mutation of K6, but not K34, in the SP-C propeptide. Mutation of K6 also inhibited processing of SP-C proprotein to the mature peptide in human embryonic kidney 293 cells. Nedd4-2-mediated ubiquitination regulates lumenal relocation of SP-C, leading to processing and, ultimately, secretion of SP-C.