The COOH terminus of the externally disposed variant surface glycoprotein (VSG) of the eukaryotic pathogenic protozoan Trypanosoma brucei strain 427 variant MITat 1.4 (117) is covalently linked to a novel phosphatidylinositol-containing glycolipid. This conclusion is supported by analysis of the products of nitrous acid deamination or Staphylococcus aureus phosphatidylinositol-specific phospholipase C treatment of purified membrane-form VSG. Lysis of trypanosomes is accompanied by release of soluble VSG, catalyzed by activation of an endogenous phospholipase C. The only apparent difference between membrane-form VSG and soluble VSG is the removal of sn-1,2-dimyristylglycerol. The COOH-terminal glycopeptide derived by Pronase digestion of soluble VSG was characterized by chemical modification and digestion with alkaline phosphatase. The results are consistent with the single non-N-acetylated glucosamine residue being the reducing terminus of the oligosaccharide and in a glycosidic linkage to a myo-inositol monophosphate that is probably myo-inositol 1,2-cyclic monophosphate. A partial structure for the VSG COOH-terminal moiety is presented. This structure represents a new type of eukaryotic post-translational protein modification and membrane anchor. We discuss the relevance of this structure to observations that have been made with other eukaryotic membrane proteins.