Missense mutations in the SGCE gene encoding ε‐sarcoglycan account for approximately 15% of SGCE‐positive cases of myoclonus‐dystonia syndrome (MDS) in humans. In this study, we show that while the majority of MDS‐associated missense mutants modeled with a murine ε‐sarcoglycan cDNA are substrates for endoplasmic reticulum‐associated degradation, one mutant, M68T (analogous to human c.275T>C, p.M92T), located in the Ig‐like domain of ε‐sarcoglycan, results in a gain‐of‐glycosylation mutation producing a protein that is targeted to the plasma membrane, albeit at reduced levels compared to wild‐type ε‐sarcoglycan. Removal of the ectopic N‐linked glycan failed to restore efficient plasma membrane targeting of M68T demonstrating that the substitution rather than the glycan was responsible for the trafficking defect of this mutant. M68T also colocalized with CD63‐positive vesicles in the endosomal–lysosomal system and was found to be more susceptible to lysosomal proteolysis than wild‐type ε‐sarcoglycan. Finally, we demonstrate impaired ectodomain shedding of M68T, a process that occurs physiologically for ε‐sarcoglycan resulting in the lysosomal trafficking of the intracellular C‐terminal domain of the protein. Our findings show that functional analysis of rare missense mutations can provide a mechanistic insight into the pathogenesis of MDS and the physiological role of ε‐sarcoglycan. Hum Mutat 32:1246–1258, 2011. ©2011 Wiley Periodicals, Inc.