The propeptide of furin has multiple roles in guiding the activation of the endoprotease in vivo. The 83-residue N-terminal propeptide is autoproteolytically excised in the endoplasmic reticulum (ER) at the consensus furin site, -Arg(104)-Thr-Lys-Arg(107)-, but remains bound to furin as a potent autoinhibitor. Furin lacking the propeptide is ER-retained and proteolytically inactive. Co-expression with the propeptide, however, restores trans-Golgi network (TGN) localization and enzyme activity, indicating that the furin propeptide is an intramolecular chaperone. Blocking this step results in localization to the ER-Golgi intermediate compartment (ERGIC)/cis-Golgi network (CGN), suggesting the ER and ERGIC/CGN recognize distinct furin folding intermediates. Following transport to the acidified TGN/endosomal compartments, furin cleaves the bound propeptide at a second, internal P1/P6 Arg site (-Arg-Gly-Val(72)-Thr-Lys-Arg(75)-) resulting in propeptide dissociation and enzyme activation. Cleavage at Arg(75), however, is not required for proper furin trafficking. Kinetic analyses of peptide substrates indicate that the sequential pH-modulated propeptide cleavages result from the differential recognition of these sites by furin. Altering this preference by converting the internal site to a canonical P1/P4 Arg motif (Val(72) --> Arg) caused ER retention and blocked activation of furin, demonstrating that the structure of the furin propeptide mediates folding of the enzyme and directs its pH-regulated, compartment-specific activation in vivo.