Leader peptidase spans the Escherichia coli plasma membrane with its amino-terminal domain facing the cytoplasm and its carboxyl terminus facing the periplasm. It is made without a cleavable leader sequence. The three apolar domains near the amino terminus of the peptidase are candidates for internal "signal sequences" and they anchor the protein to the lipid bilayer. Oligonucleotide-directed deletion was used to show that only the second domain has an essential function in membrane assembly. While this second apolar domain is crucial for membrane assembly, its continued function when disrupted by arginine suggests that its apolar character per se is not its only important feature.