Many plasma membrane proteins are anchored to the membrane via a C-terminal glycosylphosphatidylinositol (GPI) moiety. The GPI anchor is attached to the protein in the endoplasmic reticulum by transamidation, a reaction in which a C-terminal GPI-attachment signal is cleaved off concomitantly with addition of the GPI moiety. GPI-attachment signals are poorly conserved on the sequence level but are all composed of a polar segment that includes the GPI-attachment site followed by a hydrophobic segment located at the very C terminus of the protein. Here, we show that efficient GPI modification requires that the hydrophobicity of the C-terminal segment is marginal: less hydrophobic than type II transmembrane anchors and more hydrophobic than the most hydrophobic segments found in secreted proteins. We further show that the GPI-attachment signal can be modified by the transamidase irrespective of whether it is first released into the lumen of the endoplasmic reticulum or is retained in the endoplasmic reticulum membrane.