To gain an understanding of the mechanism by which the subcellular distribution of cytosolic epoxide hydrolase (cEH) is directed, we have analyzed the carboxy terminal region of rat liver cEH by means of cDNA cloning to define the structure of its possible peroxisomal targeting sequence (PTS). Purified cEH was subjected to peptide analysis following endoproteinase Glu-C digestion and HPLC-separation of the fragments. The obtained sequence information was used to perform PCR experiments resulting in the isolation of a 680 bp cDNA clone encoding the carboxy terminus of cEH. The deduced amino acid sequence displays a terminal tripeptide Ser-Lys-Ile which is highly homologous to the PTS (Ser-Lys-Leu) found in other peroxisomal enzymes. This slight difference appears to be sufficient to convert the signal sequence into an impaired and therefore ambivalent PTS, directing the enzyme partly to the peroxisomes and allowing part to reside in the cytosol.