Previously we showed that smooth microsomes from a variety of tissues effectively cleaved, sequestered, and "core" glycosylated nascent chains of secretory proteins. To further characterize the role of smooth membranes in the biosynthesis of secretory polypeptides, rat liver smooth microsomes were separated into smooth endoplasmic reticulum and Golgi fractions. Membranes of the smooth endoplasmic reticulum cleaved the signal peptide of pre-placental lactogen, attached the high mannose core to the alpha subunit of chorionic gonadotropin, and sequestered the processed proteins. None of these processing steps were performed by Golgi membranes. However, processing of asparagine-linked oligosaccharides and the coincident addition of terminal sugars was performed by Golgi but not by smooth endoplasmic reticulum membranes. The properties of this post-translational reaction are very similar to those described for the reactions in vivo. These observations demonstrate that the enzymes for co-translational (pre-protein processing) and posttranslational (oligosaccharide maturation) processing events are localized in the endoplasmic reticulum and Golgi apparatus, respectively. This functional differentiation of Golgi and endoplasmic reticulum membranes is an important feature of the secretory process in eukaryotic cells. Restriction of the recognition and transport of nascent secretory proteins to the endoplasmic reticulum establishes the polarity necessary for the ordered sequence of post-translational steps involved in the synthesis and maturation of secretory proteins.