Biosynthesis of surfactant protein C (SP-C) by alveolar type 2 cells requires proteolytic processing of a 21-kDa propeptide (proSP-C21) in post-Golgi compartments to yield a 3.7-kDa mature form. Scanning alanine mutagenesis, binding assays, and co-immunoprecipitation were used to characterize the proSP-C targeting domain. Delivery of proSP-C21 to distal processing organelles is dependent upon the NH2-terminal cytoplasmic SP-C propeptide, which contains a conserved PPDY motif. In A549 cells, transfection of EGFP/proSP-C21 constructs containing polyalanine substitution for Glu11-Thr18, 13PPDY16, or 14P,16Y produced endoplasmic reticulum retention of the fusion proteins. Protein-protein interactions of proSP-C with known WW domains were screened using a solid-phase array that revealed binding of the proSP-C NH2 terminus to several WW domains found in the Nedd4 family of E3 ligases. Specificity of the interaction was confirmed by co-immunoprecipitation of proSP-C and Nedd4 or Nedd4-2 in epithelial cell lines. By Western blotting and reverse transcription-PCR, both forms were detected in primary human type 2 cells. Knockdown of Nedd4-2 by small interference RNA transfection of cultured human type 2 cells blocked processing of 35S-labeled proSP-C21. Mutagenesis of potential acceptor sites for ubiquitination in the cytosolic domain of proSP-C (Lys6, Lys34, or both) failed to inhibit trafficking of EGFP/proSP-C21. These results indicate that PPDY-mediated interaction with Nedd4 E3-ligases is required for trafficking of proSP-C. We speculate that the Nedd4/proSP-C tandem is part of a larger protein complex containing a ubiquitinated component that further directs its transport.