Bacterial endotoxin (lipopolysaccharide, LPS) induces coagulation of horseshoe crab hemolymph. Our previous studies had demonstrated that a hemolymph factor, designated factor B, was associated with the LPS-mediated activation of the Limulus clotting system [Ohki et al. (1980) FEBS Lett. 120, 318-321]. On further purification of factor B we found that an additional component, designated factor C, was required to generate factor B activity in the presence of LPS in order to activate the proclotting enzyme. To elucidate the role of factor C in the LPS-mediated reaction, factor C was isolated and characterized from the hemocyte lysate under sterile conditions. The preparation exhibited a single band on sodium dodecyl sulfate/polyacrylamide gel electrophoresis (SDS-PAGE) in the absence of 2-mercaptoethanol, while two protein bands on SDS-PAGE were observed after reduction. Thus, factor C had a Mr of 123 000 consisting of a heavy chain of Mr = 80 000 and a light chain of Mr = 43 000. Factor C was converted to an activated form in the presence of LPS with a Mr = 123 000, designated factor C. Upon activation, cleavage of the light chain occurred resulting in the accumulation of two new fragments of Mr = 34000 and 8500 on reduced SDS-PAGE. A diisopropylfluorophosphate-sensitive active site was localized in the light chain (Mr = 34000) of factor C. The reconstitution experiments, using factor C, factor B, proclotting enzyme and LPS, demonstrated that all of these proteins are essential for the endotoxin-mediated coagulation system. On the basis of these results we propose that a cascade pathway of LPS-induced activation of the Limulus clotting system consists of three sequential activations of hemolymph serine protease zymogens.