Prenylation is the posttranslational modification of a carboxyl-terminal cysteine residue of proteins that terminate with a CAAX motif. Following prenylation, the last three amino acids are cleaved off by the endoprotease, RAS-converting enzyme 1 (RCE1), and the prenylcysteine residue is methylated. Although it is clear that prenylation increases membrane affinity of CAAX proteins, less is known about the importance of the postprenylation processing steps. RCE1 function has been studied in a variety of tissues but not in neuronal cells. To approach this issue, we generated mice lacking Rce1 in the retina. Retinal development proceeded normally in the absence of Rce1, but photoreceptor cells failed to respond to light and subsequently degenerated in a rapid fashion. In contrast, the inner nuclear and ganglion cell layers were unaffected. We found that the multimeric rod phosphodiesterase 6 (PDE6), a prenylated protein and RCE1 substrate, was unable to be transported to the outer segments in Rce1-deficient photoreceptor cells. PDE6 present in the inner segment of Rce1-deficient photoreceptor cells was assembled and functional. Synthesis and transport of transducin, and rhodopsin kinase 1 (GRK1), also prenylated substrates of RCE1, was unaffected by Rce1 deficiency. We conclude that RCE1 is essential for the intracellular trafficking of PDE6 and survival of photoreceptor cells.