The prion protein (PrPC) is a glycolipid-anchored, cell surface protein of unknown function, a posttranslationally modified isoform of which has been implicated in the pathogenesis of spongiform encephalopathies in man and animals. We report here the novel observation that chPrP, the chicken homologue of mammalian PrPC, constitutively cycles between the cell surface and an endocytic compartment with a transit time of approximately 60 min, as demonstrated by surface iodination and immunofluorescence microscopy. Most (> 95%) of the internalized protein is returned to the cell surface intact, and the remainder is proteolytically cleaved within a highly conserved region in the NH2-terminal half of the molecule. Pulse-chase labeling experiments indicate that while this cleavage is slow, with a rate of approximately 1%/h, the COOH-terminal fragment produced is stable and accumulates on the cell surface for as long as 24 h. The cleavage is likely to take place in an acidified endocytic compartment, since it is reduced by lysosomotropic amines and inhibitors of lysosomal proteases. Our results raise the possibility that chPrP, and perhaps other PrPCs, function as cell surface receptors, and they suggest cellular pathways that might be involved in the generation of the pathogenic isoform.