The MC80R gene of molluscum contagiosum virus (MCV) type 1 encodes a major histocompatibility complex (MHC) class I homolog that lacks several amino-acid residues critical for peptide binding by MHC molecules, contains an unusually long N-terminal hydrophobic domain possibly derived by triplication of a signal peptide, and has a C-terminal transmembrane domain with two glutamate residues. All of these features were present in the orthologous gene of MCV type 2. The MC80R gene was expressed as two glycosylated polypeptides of Mr 47,000 and 42,000. Pulse-chase experiments indicated that the larger polypeptide was a precursor of the shorter one and that the entire N-terminal domain was slowly removed, consistent with its function as a long signal peptide. The protein was largely sequestered in the endoplasmic reticulum and Golgi membranes, remained endoglycosidase-H sensitive, and was not detected on the cell surface. In addition, a genetically modified form of the MC80R protein lacking the transmembrane and cytoplasmic domains was not secreted. The roles of the MC80R protein domains were investigated by constructing chimera between the viral protein and the MHC class I protein HLA-A2. Expression studies confirmed that the N- and C-terminal hydrophobic regions of the MC80R protein served as signal and transmembrane domains, respectively. The central portion of the MC80R protein, corresponding to the alpha1-alpha3 extracellular domains of HLA-A2, was largely responsible for sequestering the protein in the endoplasmic reticulum or Golgi compartments. The MC80R protein, as well as HLA-A2 chimera with the central region of MC80R, formed stable intracellular complexes with beta2-microglobulin. Complex formation, however, was detected only by overexpression of the MC80R protein or beta2-microglobulin.