We investigated the ubiquitin-like modification of GABAA receptor-associated protein (GABARAP) and its function. A fusion protein of GABARAP with v5 in the N terminus and myc in the C terminus was expressed in rat cultured hippocampal neurons and PC12 cells. Western blotting with antibodies to v5 and myc revealed that the C terminus of GABARAP was cleaved off. Cleavage was blocked by mutating the C-terminal Gly116 to Ala, suggesting that G116 is required for the processing. Unlike ubiquitin, GABARAP was not incorporated covalently into higher-molecular-weight protein complexes. Nor was GABARAP degraded by ubiquitinylation through the proteasome, although GABARAP formed noncovalent dimers. Immunofluorescent confocal microscopy demonstrated that recombinantly expressed GABARAP was diffusely localized in PC12 cells. However, prevention of C-terminal processing in the mutant GABARAPG116A resulted in redistribution to the Golgi. In neurons, punctate cytoplasmic staining of GABARAP was seen in soma and processes, whereas GABARAPG116A was limited to soma. Compared with wild-type GABARAP, the colocalization and interaction of GABARAPG116A with GABAA receptors were significantly reduced, resulting in a reduction in expression of receptors in the plasma membrane. When 1ß22S-containing GABAA receptors were expressed in oocytes, the increased surface expression of GABAA receptors, as shown by increased GABA currents and surface-accessible GABAA receptor subunit polypeptides resulting from GABARAP coexpression, was prevented by mutation G116A. In addition, the distribution of NSF (N-ethylmaleimide-sensitive factor) was affected in GABARAPG116A-expressing neurons. These results suggest that glycine 116 is required for C-terminal processing of GABARAP and that processing is essential for the localization of GABARAP and its functions as a trafficking protein. Key words: GABAA receptors; GABARAP; trafficking; ubiquitinylation-like modification; NSF; inhibitory neurotransmission