Bile acid CoA:amino acid N-acyltransferase (BAAT) is the terminal enzyme in the synthesis of bile salts from cholesterol and catalyzes the conjugation of taurine or glycine to bile acid CoA thioesters to form bile acid N-acylamidates. BAAT has a dual localization to the cytosol and peroxisomes, possibly due to an inefficient carboxy-terminal peroxisomal targeting signal (PTS), -serine-glutamineleucine (-SQL). Mutational analysis was used to define the role of the carboxy terminus in peroxisomal localization and kinetic activity. Amidation activity of BAAT and BAAT lacking the final two amino acids (AAs) (BAAT-S) were similar, whereas the activity of BAAT with a canonical PTS sequence (BAAT-SKL) was increased >2.5-fold. Kinetic analysis of BAAT and BAAT-SKL showed that BAAT-SKL had a lower Km for taurine and glycine as well as a greater Vmax. There was no difference in the affinity for cholyl-CoA. In contrast to BAAT, BAAT-SKL forms bile acid N-acylamidates with β-alanine. BAAT-S immunoprecipitated when incubated with peroxisomal biogenesis factor 5 (Pex5) and rabbit anti-Pex5 antibodies; however, deleting the final 12 AAs prevented coimmunoprecipitation with Pex5, indicating the Pex5 interaction involves more than the -SQL sequence. These results indicate that even small changes in the carboxy terminus of BAAT can have significant effects on activity and substrate specificity.