After isoprenylation, the Ras proteins and other CAAX proteins undergo two additional enzymatic modifications—endoproteolytic release of the last three amino acids of the protein by the protease Rce1 and methylation of the carboxyl-terminal isoprenylcysteine by the methyltransferase Icmt. This postisoprenylation processing is thought to be important for the association of Ras proteins with membranes. Blocking postisoprenylation processing, by inhibiting Rce1, has been suggested as a potential approach for retarding cell growth and blocking cellular transformation. The objective of this study was to develop a cell culture system for addressing these issues. We generated mice with a conditional Rce1 allele (Rce1 ^flox) and produced Rce1 ^flox/flox fibroblasts. Cre-mediated excision of Rce1 (thereby producing Rce1 ^Δ/Δ fibroblasts) eliminated Ras endoproteolytic processing and methylation and caused a partial mislocalization of truncated K-Ras and H-Ras fusion proteins within cells. Rce1 ^Δ/Δ fibroblasts grew more slowly than Rce1 ^flox/flox fibroblasts. The excision of Rce1 also reduced Ras-induced transformation, as judged by the growth of colonies in soft agar. The excision of Rce1 from a Rce1 ^flox/flox skin carcinoma cell line also significantly retarded the growth of cells, and this effect was exaggerated by cotreatment of the cells with a farnesyltransferase inhibitor. These studies support the idea that interference with postisoprenylation processing retards cell growth, limits Ras-induced transformation, and sensitizes tumor cells to a farnesyltransferase inhibitor.