We recently reported that the high mannose-type oligosaccharides of the biosynthetic intermediates of beta-glucuronidase contain phosphate groups in diester linkage between mannose residues and outer alpha-linked N-acetylglucosamine residues (Tabas, I., and Kornfeld, S. (1980) J. Biol. Chem. 255, 6633-6639). We now describe an alpha-N-acetylglucosaminyl phosphodiesterase from rat liver that is capable of removing the N-acetyl-glucosamine residues, leaving phosphomonoester groups on the high mannose oligosaccharide units. This activity is greatly enriched in smooth membrane preparations. It can be distinguished from a lysosomal alpha-N-acetylglucosaminidase by several criteria, including subcellular localization and differential inhibition by amino sugars. In addition, human fibroblasts with mutations which lead to a deficiency of the lysosomal activity have normal levels of the alpha-N-acetylglucosaminyl phosphodiesterase. This enzyme may be involved in the "unmasking" of the phosphomannosyl recognition marker on newly synthesized acid hydrolases which could then direct the targeting of these enzymes to lysosomes.