The C-terminal CAAX motif of the yeast mating factors is modified by proteolysis to remove the three terminal amino acids (-AAX) leaving a C-terminal cysteine residue that is polyisoprenylated and carboxyl-methylated. Here we show that all ras proteins are polyisoprenylated on their C-terminal cysteine (Cys186). Mutational analysis shows palmitoylation does not take place on Cys186 as previously thought but on cysteine residues contained in the hypervariable domain of some ras proteins. The major expressed form of c-K-ras (exon 4B) does not have a cysteine residue immediately upstream of Cys186 and is not palmitoylated. Polyisoprenylated but nonpalmitoylated H-ras proteins are biologically active and associate weakly with cell membranes. Palmitoylation increases the avidity of this binding and enhances their transforming activity. Polyisoprenylation is essential for biological activity as inhibiting the biosynthesis of polyisoprenoids abolishes membrane association of p21ras.