Intracellular proteolytic processing of precursor polypeptides is an essential step in the maturation of many proteins, including plasma proteins, hormones, neuropeptides, and growth factors. Most frequently, propeptide cleavage occurs after paired basic amino acid residues. To date, no mammalian propeptide processing enzyme with such specificity has been purified or cloned and functionally characterized. We report the isolation and functional expression of a cDNA encoding a propeptide-cleaving enzyme from a human liver cell line. The encoded protein, called PACE (paired basic amino acid cleaving enzyme), has structural homology to the well-characterized subtilisin-like protease Kex2 from yeast. The functional specificity of PACE for mediating propeptide cleavage at paired basic amino acid residues was demonstrated by the enhancement of propeptide processing of human von Willebrand factor when coexpressed with PACE in COS-1 cells.