The sulfatases constitute a conserved family of enzymes that specifically hydrolyze sulfate esters in a wide variety of substrates such as glycosaminoglycans, steroid sulfates, or sulfolipids. By modifying the sulfation state of their substrates, sulfatases play a key role in the control of physiological processes, including cellular degradation, cell signaling, and hormone regulation. The loss of sulfatase activity has been linked with various severe pathophysiological conditions such as lysosomal storage disorders, developmental abnormalities, or cancer. A novel member of this family, arylsulfatase G (ASG), was initially described as an enzyme lacking in vitro arylsulfatase activity and localizing to the endoplasmic reticulum. Contrary to these results, we demonstrate here that ASG does indeed have arylsulfatase activity toward different pseudosubstrates like p-nitrocatechol sulfate and 4-methylumbelliferyl sulfate. The activity of ASG depends on the Cys-84 residue that is predicted to be post-translationally converted to the critical active site C(alpha)-formylglycine. Phosphate acts as a strong, competitive ASG inhibitor. ASG is active as an unprocessed 63-kDa monomer and shows an acidic pH optimum as typically seen for lysosomal sulfatases. In transfected cells, ASG accumulates within lysosomes as indicated by indirect immunofluorescence microscopy. Furthermore, ASG is a glycoprotein that binds specifically to mannose 6-phosphate receptors, corroborating its lysosomal localization. ARSG mRNA expression was found to be tissue-specific with highest expression in liver, kidney, and pancreas, suggesting a metabolic role of ASG that might be associated with a so far non-classified lysosomal storage disorder.