We have analyzed the processing of the Epstein-Barr virus-encoded latent membrane protein (p63/LMP) in lymphoblastoid cell lines, Burkitt's lymphoma cell lines, and rodent fibroblasts transfected with the p63/LMP gene. Pulse-chase analysis by immunoprecipitation, under denaturing conditions, reveals a half-life of 2 h. This is due to turnover in the plasma membrane with cleavage of the protein, resulting in a 25,000-molecular-weight (p25) fragment derived from the carboxy-terminal portion of LMP. This fragment is rich in proline and acidic amino acids and sheds into the cytoplasm, where it appears to accumulate, being present in a six- to sevenfold molar excess over p63/LMP in immunoprecipitation analyses. p25 is, like p63/LMP, also phosphorylated (pp25) on serine and threonine residues, in the same ratio and to approximately the same extent as the intact p63/LMP molecule. Amino acid sequence analysis and carboxy-terminal labeling suggest that p25 is derived through a single cleavage adjacent to the sequence LGAPGGGPDNGPQDPD.