A key step in the action of cholera toxin (CT) is the reduction of its A subunit to the A1 peptide. The latter is an ADP-ribosyltransferase, which activates the alpha-subunit of the stimulatory G protein of adenylyl cyclase. In this study, the enzymatic reduction of membrane-bound CT in CaCo-2 human intestinal epithelial cells was characterized. Whereas diphtheria toxin was found to be reduced by a cell surface population of protein-disulfide isomerase (PDI) and its cytotoxicity was inhibited by p-chloromercuribenzenesulfonic acid, bacitracin, or anti-PDI antibodies, these inhibitors had no effect on CT reduction or activity in intact cells. In contrast, the reduction of CT in vitro by either postnuclear supernatants (PNS) or microsomal membranes in the presence of Triton X-100 was significantly inhibited by p-chloromercuribenzenesulfonic acid and bacitracin. Anti-PDI monoclonal antibodies likewise inhibited the in vitro reduction of CT and also were effective in depleting reductase activity from PNS. Since inhibition and depletion were not observed in the absence of detergent, these results suggested that the reductase activity was a soluble component localized to the lumen of microsomal vesicles and correlated with the presence of protein-disulfide isomerase. This was further confirmed by showing a corresponding depletion of reductase activity and PDI in alkali-treated microsomes. This activity was restored when purified bovine PDI was added back to alkali-treated microsomes in a redox buffer that reflected conditions found in the lumen of the endoplasmic reticulum (ER). When the CT-related reductase activity was assayed in subcellular fractions of PNS-derived membranes isolated on a 9-30% Iodixanol gradient, the activity, as measured by CT-A1 peptide formation localized to those fractions containing PDI. Likewise CT-A1 peptide formed in intact cells co-localized to those membrane fractions containing the majority of cellular PDI. Furthermore, the banding density corresponded to a region of the gradient containing ER-derived membranes. These results indicated that CT was a substrate for PDI-catalyzed reduction in intact cells and supported the hypothesis that CT reduction and activation occurs in the ER.