The endoplasmic reticulum is a major site of localization for eukaryotic cytochrome P-450 mixed-function oxidase complexes. Previous studies have shown that the microsomal forms of P-450 insert into the membrane via their hydrophobic amino terminus through the signal recognition particle-dependent pathway. We have examined the insertion of bovine 17 alpha-hydroxylase (P45017 alpha) into the endoplasmic reticulum of COS 1 cells to evaluate the functional role of its hydrophobic amino-terminal sequence and membrane insertion. An NH2-terminal truncated protein, P450 delta 2-17, which lacked amino acids 2-17 was expressed in COS 1 cells, subcellular fractions were isolated, and P450 delta 2-17 was localized by immunoblot analysis. Compared to the full-length P45017 alpha, the NH2-terminal truncation resulted in a 2.5-fold decrease in P45017 alpha protein recovered with the microsomal fraction, 50% of which was an integral membrane protein as defined by resistance to Na2CO3 extraction. Despite correct membrane localization, P450 delta 2-17 was not a functional enzyme in COS 1 cells. A CO difference spectrum of microsomes containing P450 delta 2-17 did not give a typical 450 nm absorbance. We conclude that the hydrophobic amino terminus is required for the expression of a functionally competent P45017 alpha in COS 1 cells and suggest that the insertion of the amino terminus into the membrane is necessary for the folding of this protein into its correct structural form.