GlcNAc-1-phosphotransferase plays a key role in the generation of mannose 6-phosphate, a recognition marker essential for efficient transport of lysosomal hydrolases to lysosomes. The enzyme complex is composed of six subunits (α(2)β(2)γ(2)). The α- and β-subunits are catalytically active, whereas the function of the γ-subunit is still unclear. We have investigated structural properties, localization, and intracellular transport of the human and mouse γ-subunits and the molecular requirements for the assembly of the phosphotransferase complex. The results showed that endogenous and overexpressed γ-subunits were localized in the cis-Golgi apparatus. Secreted forms of γ-subunits were detectable in media of cultured cells as well as in human serum. The γ-subunit contains two in vivo used N-glycosylation sites at positions 88 and 115, equipped with high mannose-type oligosaccharides. (35)S pulse-chase experiments and size exclusion chromatography revealed that the majority of non-glycosylated γ-subunit mutants were integrated in high molecular mass complexes, failed to exit the endoplasmic reticulum (ER), and were rapidly degraded. The substitution of cysteine 245 involved in dimerization of γ-subunits impaired neither ER exit nor trafficking through the secretory pathway. Monomeric γ-subunits failed, however, to associate with other GlcNAc-1-phosphotransferase subunits. The data provide evidence that assembly of the GlcNAc-1-phosphotransferase complex takes place in the ER and requires dimerization of the γ-subunits.