Most newly synthesized proteins destined for the lysosome reach this location via a specific intracellular pathway. In the Golgi, a phosphotransferase specifically labels lysosomal proteins with mannose 6-phosphate (Man-6-P). This modification is recognized by receptors that target the lysosomal proteins to the lysosome where, in most cell types, the Man-6-P recognition marker is rapidly removed. Despite extensive characterization of this pathway, the enzyme responsible for the removal of the targeting modification has remained elusive. In this study, we have identified this activity. Preliminary investigations using a cell-based bioassay were used to follow a dephosphorylation activity that was associated with the lysosomal fraction. This activity was high in the liver, where endogenous lysosomal proteins are efficiently dephosphorylated, but present at a much lower level in the brain, where the modification persists. This observation, combined with an analysis of the expression of lysosomal proteins in different tissues, led us to identify acid phosphatase 5 (ACP5) as a candidate for the enzyme that removes Man-6-P. Expression of ACP5 in N1E-115 neuroblastoma cells, which do not efficiently dephosphorylate lysosomal proteins, significantly decreased the steady state levels of Man6-P glycoproteins. Analysis of ACP5-deficient mice revealed that levels of Man-6-P glycoproteins were highly elevated in tissues that normally express ACP5, and this resulted from a failure to dephosphorylate lysosomal proteins. These results indicate a central role for ACP5 in removal of the Man-6-P recognition marker and open up new avenues to investigate the importance of this process in cell biology and medicine.