An endoproteolytic enzyme of Escherichia coli, designated protease III, has been purified about 9,600-fold to homogeneity with a 6% yield. The purified enzyme consists of a single polypeptide chain of Mr 110,000 and is most active at pH 7.4. Protease III is very sensitive to metal-chelating agents and reducing agents. The EDTA-inactivated enzyme can be reactivated by Zn2+, Co2+ or Mn2+. Protease III is devoid of activity toward aminopeptidase, carboxypeptidase, or esterase substrates but rapidly degrades small proteins. When fragments of beta-galactosidase are used as substrates for protease III, the enzyme preferentially degrades proteins with molecular weights of less than 7,000. Protease III cleaves the oxidized insulin B chain at two sites with an initial rapid cleavage at Tyr-Leu (16-17) and a second slower cut at Phe-Tyr (25-26).