CLC chloride channels are a family of channel proteins mediating chloride transport across the plasma membrane and intracellular membranes. The single yeast CLC protein Gef1p is localized to the Golgi and endosomal system. Investigating epitope-tagged variants of Gef1p, we found that the channel is proteolytically processed in the secretory pathway. Proteolytic cleavage occurs in the first extracellular loop of the protein at residues KR136/137 and is carried out by the Kex2p protease. Fragments mimicking the N- and C-terminal products of the cleavage reaction are non-functional when expressed alone. However, functional channels can assemble when the two fragments are co-expressed.