Rab5 is a Ras-related GTP-binding protein that is post-translationally modified by prenylation. We report here that an N-terminal domain contained within the first 22 amino acids of Rab5 is critical for efficient geranylgeranylation of the protein's C-terminal cysteines. This domain is immediately upstream from the "phosphate binding loop" common to all GTP-binding proteins and contains a highly conserved sequence recognized among members of the Rab family, referred to here as the YXYLFK motif. A truncation mutant that lacks this domain (Rab5(23-215) fails to become prenylated. However, a chimeric peptide with the conserved motif replacing cognate Rab5 sequence (MAYDYLFKRab5(23-215) does become post-translationally modified, demonstrating that the presence of this simple six amino acid N-terminal element enables prenylation at Rab5's C-terminus. H-Ras/Rab5 chimeras that include the conserved YXYLFK motif at the N-terminus do not become prenylated, indicating that, while this element may be necessary for prenylation of Rab proteins, it alone is not sufficient to confer properties to a heterologous protein to enable substrate recognition by the Rab geranylgeranyl transferase. Deletion analysis and studies of point mutants further reveal that the lysine residue of the YXYLFK motif is an absolute requirement to enable geranylgeranylation of Rab proteins. Functional studies support the idea that this domain is not required for guanine nucleotide binding since prenylation-defective mutants still bind GDP and are protected from protease digestion in the presence of GTP gamma S. We conclude that the mechanism of Rab geranylgeranylation involves key elements of the protein's tertiary structure including a conserved N-terminal amino acid motif (YXYLFK) that incorporates a critical lysine residue.