Oncogenic forms of ras proteins are synthesized in the cytosol and must become membrane associated to cause malignant transformation. Palmitic acid and an isoprenoid (farnesol) intermediate in cholesterol biosynthesis are attached to separate cysteine residues near the C termini of H-ras, N-ras, and Kirsten-ras (K-ras) exon 4A-encoded proteins. These lipid modifications have been suggested to promote or stabilize the association of ras proteins with membranes. Because preventing isoprenylation also prevents palmitoylation, examining the importance of isoprenylation alone has not been possible. However, the oncogenic human [Val12]K-ras 4B protein is not palmitoylated but is isoprenylated, membrane associated, and fully transforming. We therefore constructed mutant [Val12]K-ras 4B proteins that were not isoprenylated to examine the effects of isoprenylation in the absence of palmitoylation. The nonisoprenylated mutant proteins both failed to associate with membranes and did not transform NIH 3T3 cells. In addition, inhibition of isoprenoid and cholesterol synthesis with the drug compactin also decreased [Val12]K-ras 4B protein isoprenylation and membrane association. These results unequivocally demonstrate that isoprenylation, rather than palmitoylation, is essential for ras membrane binding and ras transforming activity. These findings clearly indicate the biological significance of ras protein modification by farnesol and suggest that this modification may be important for facilitating the processing, trafficking, and biological activity of other isoprenylated proteins. Because K-ras is the most frequently activated oncogene in a wide spectrum of human malignancies, study of this pathway could lead to important therapeutic treatments.