By interconverting glucocorticoids, 11beta-hydroxysteroid dehydrogenase type 1 (11beta-HSD1) exerts an important pre-receptor function and is currently considered a promising therapeutic target. In addition, 11beta-HSD1 plays a potential role in 7-ketocholesterol metabolism. Here we investigated the role of the N-terminal region on enzymatic activity and addressed the relevance of 11beta-HSD1 orientation into the endoplasmic reticulum (ER) lumen. Previous studies revealed that the luminal orientation of 11beta-HSD1 and 50-kDa esterase/arylacetamide deacetylase (E3) is determined by their highly similar N-terminal transmembrane domains. Substitution of Lys(5) by Ser in 11beta-HSD1, but not of the analogous Lys(4) by Ile in E3, led to an inverted topology in the ER membrane, indicating the existence of a second topological determinant. Here we identified Glu(25)/Glu(26) in 11beta-HSD1 and Asp(25) in E3 as the second determinant for luminal orientation. Our results suggest that the exact location of specific residues rather than net charge distribution on either side of the helix is critical for membrane topology. Analysis of charged residues in the N-terminal domain revealed an essential role of Lys(35)/Lys(36) and Glu(25)/Glu(26) on enzymatic activity, suggesting that these residues are responsible for the observed stabilizing effect of the N-terminal membrane anchor on the catalytic domain of 11beta-HSD1. Moreover, activity measurements in intact cells expressing wild-type 11beta-HSD1, facing the ER lumen, or mutant K5S/K6S, facing the cytoplasm, revealed that the luminal orientation is essential for efficient oxidation of cortisol. Furthermore, we demonstrate that 11beta-HSD1, but not mutant K5S/K6S with cytoplasmic orientation, catalyzes the oxoreduction of 7-ketocholesterol. 11beta-HSD1 and E3 constructs with cytosolic orientation of their catalytic moiety should prove useful in future studies addressing the physiological function of these proteins.