The Wnt protein Wingless (Wg) functions as a signal in patterning of both the Drosophila embryo and imaginal discs. Lack of porcupine (porc) activity is associated with mutant phenotypes similar to those of wg mutations. In porc mutant embryos, Wg protein is confined to the cells that produce it, suggesting that Porc plays a role in processing or secretion of Wg. porc encodes a novel transmembrane protein that appears to be concentrated at the endoplasmic reticulum. We present both genetic and in vitro evidence demonstrating that porc is involved specifically in the processing of Wg. We identified a human sequence related to Porc suggesting the existence of a family of proteins involved in processing of Wnts.