A spontaneous point mutation in the coding region of the carboxypeptidase E (CPE) gene in Cpe(fat)/Cpe(fat) mice affects proinsulin processing. Cell lines derived from the pancreatic beta-cells of Cpe(fat)/Cpe(fat) mice were generated by crossing C57BLKS/J-Cpe(fat)/+ mice with NOD mice expressing the simian virus 40 large T oncogene under the control of the rat insulin II promoter. Two cell lines, designated NIT-2 and NIT-3, were cultured from adenomatous islets obtained from F2 littermates and were compared with the NIT-1 cell line previously developed from mice with wild-type CPE. Electron microscopy of the cultured NIT-2 and -3 cells showed increased numbers of enlarged and electron-lucent granules compared with NIT-1 cells. Pro-CPE, but not the mature form of CPE, is present in NIT-2 and -3 cells, and neither pro-CPE nor CPE are secreted into the medium. Immunocytochemistry shows the pro-CPE to be localized to an endoplasmic reticulum-like structure in NIT-3 cells. Proinsulin is less extensively processed in NIT-2 and -3 cells than in NIT-1 cells, indicating that the Cpe(fat) mutation affects both the endopeptidase and carboxypeptidase reactions. The secretion of insulin/proinsulin from NIT-2 and -3 cells is significantly elevated by secretagogues, indicating that CPE is not required for sorting proinsulin into the regulated pathway.