Transforming growth factor-beta 1 (TGF-beta 1) is synthesized and secreted as a biologically latent complex. It has been proposed that one role of the latent complex is to prevent premature interaction of ligand and receptor intracellularly during biosynthesis (Wakefield et al., J. Cell Biol. (1987) 105, 965-975). To test this hypothesis, the endoplasmic reticulum retention sequence Lys-Asp-Glu-Leu (KDEL) was added to the C-terminus of the wildtype TGF-beta 1 coding sequence, and to a construct in which mutagenesis of two cysteine residues in the precursor pro region results in the synthesis and secretion of active, as opposed to latent, TGF-beta. Addition of either SEKDEL, or the control sequence SEKDVS to the TGF-beta 1 protein abolished biological activity. Western blot analysis indicated that the extended gene products are synthesized, but that the extension sequence partially interferes with the normal dimerization of the protein product, and totally inhibits the normal proteolytic processing and glycosylation of the precursor protein. The data suggest that correct folding of the highly conserved C terminus of TGF-beta 1 is critical for subsequent proteolytic cleavage and glycosylation at sites that are quite distant in the primary sequence. Thus molecular strategies for the generation of TGF-beta antagonists or superagonists should avoid extensive modification of this region of the molecule. Since synthesis of the endogenous TGF-beta 1 is unaffected by the presence of the mutated analog, the data further indicate that transfection with the KDEL-extended TGF-beta 1 sequence cannot be used as a dominant negative mutation to prevent secretion of the endogenous TGF-beta protein.