The proteolytic system of Bifidobacterium animalis subsp. lactis was analyzed, and an intracellular endopeptidase (PepO) was identified and characterized. This work reports the first complete cloning, purification, and characterization of a proteolytic enzyme in Bifidobacterium spp. Aminopeptidase activities (general aminopeptidases, proline iminopeptidase, X-prolyl dipeptidylaminopeptidase) found in cell extracts of B. animalis subsp. lactis were higher for cells that had been grown in a milk-based medium than for those grown in MRS. A high specific proline iminopeptidase activity was observed in B. animalis subsp. lactis. Whole cells and cell wall-bound protein fractions showed no caseinolytic activity; however, the combined action of intracellular proteolytic enzymes could hydrolyze casein fractions rapidly. The endopeptidase activity of B. animalis subsp. lactis was examined in more detail, and the gene encoding an endopeptidase O in B. animalis subsp. lactis was cloned and overexpressed in Escherichia coli. The deduced amino acid sequence for B. animalis subsp. lactis PepO indicated that it is a member of the M13 peptidase family of zinc metallopeptidases and displays 67.4% sequence homology with the predicted PepO protein from Bifidobacterium longum. The recombinant enzyme was shown to be a 74-kDa monomer. Activity of B. animalis subsp. lactis PepO was found with oligopeptide substrates of at least 5 amino acid residues, such as met-enkephalin, and with larger substrates, such as the 23-amino-acid peptide alpha s1-casein(f1-23). The predominant peptide bond cleaved by B. animalis subsp. lactis PepO was on the N-terminal side of phenylalanine residues. The enzyme also showed a post-proline secondary cleavage site.