Proteins from eucaryotic cells which have a carboxyl-terminal CAAX motif are posttranslationally modified by isoprenylation. The pathway involves the linkage of an all-trans-farnesyl (C15) or an all-trans-geranylgeranyl (C20) moiety to the cysteine residue followed by proteolysis which generates the modified cysteine as the carboxyl-terminal residue. Carboxylmethylation of the modified cysteine residue completes the pathway. This latter methylation reaction is the only potentially reversible reaction in the pathway and thus of possible regulatory significance. A specific esterase is required to reverse the methylation. It is demonstrated here that simple isoprenylated cysteine derivatives, such as N-acetyl-S-farnesyl-L-cysteine methyl ester (L-AFCM) and N-acetyl-S-geranylgeranyl-L-cysteine methyl ester (L-AGGCM), are substrates for a rod outer segment (ROS) membrane esterase activity. The KM and Vmax values for L-AFCM and L-AGGCM are 186 microM and 2.2 nmol mg-1 min-1 and 435 microM and 4.8 nmol mg-1 min-1, respectively. The enzyme(s) is stereoselective rather than stereospecific because D-AFCM is enzymatically hydrolyzed with KM and Vmax values of 157 microM and 0.46 nmol mg-1 min-1, respectively. The enzyme(s) does not process N-acetyl-L-cysteine methyl ester, demonstrating that the isoprenyl moiety is required for substrate activity. Ebelactone B is a potent mechanism-based inactivator of the enzyme with a KI = 42 microM and a kinh = 3.7 x 10(-3) s-1. Importantly, L-AFCM, L-AGGCM, and ebelactone B all inhibit the demethylation of the endogenous ROS substrates, showing that the same enzymatic activity is involved in the processing of the synthetic and physiological substrates.