In prion diseases, the cellular form of the prion protein, PrP(C), undergoes a conformational conversion to the infectious isoform, PrP(Sc). PrP(C) associates with lipid rafts through its glycosyl-phosphatidylinositol (GPI) anchor and a region in its N-terminal domain which also binds to heparan sulfate proteoglycans (HSPGs). We show that heparin displaces PrP(C) from rafts and promotes its endocytosis, suggesting that heparin competes with an endogenous raft-resident HSPG for binding to PrP(C). We then utilised a transmembrane-anchored form of PrP (PrP-TM), which is targeted to rafts solely by its N-terminal domain, to show that both heparin and phosphatidylinositol-specific phospholipase C can inhibit its association with detergent-resistant rafts, implying that a GPI-anchored HSPG targets PrP(C) to rafts. Depletion of the major neuronal GPI-anchored HSPG, glypican-1, significantly reduced the raft association of PrP-TM and displaced PrP(C) from rafts, promoting its endocytosis. Glypican-1 and PrP(C) colocalised on the cell surface and both PrP(C) and PrP(Sc) co-immunoprecipitated with glypican-1. Critically, treatment of scrapie-infected N2a cells with glypican-1 siRNA significantly reduced PrP(Sc) formation. In contrast, depletion of glypican-1 did not alter the inhibitory effect of PrP(C) on the beta-secretase cleavage of the Alzheimer's amyloid precursor protein. These data indicate that glypican-1 is a novel cellular cofactor for prion conversion and we propose that it acts as a scaffold facilitating the interaction of PrP(C) and PrP(Sc) in lipid rafts.