A dipeptidyl peptidase (DPP) was purified to homogeneity using lys-ala-beta-naphthylamide, the standard substrate for DPP II. The enzyme is a monomer with a Mr of 70kDa, pl 5.2, and Km 5.0 microM. Its terminal amino acid sequence was XXLLYAIQKRLF and was not identical to that of any known protein. Although initially considered to be a DPP II, the enzyme differed in some properties from classical DPP IIs. It had a pH optimum of 7.9, was not active on X-pro-naphthylamides, the usual substrates of mammalian DPP II, but was active on arg-arg- and asp-arg-naphthylamides, substrates acted on by the DPP III class of enzymes. This enzyme therefore combines properties typical of both DPP II and III and differs from all previously described DPPs. Activity on lys-ala-beta-naphthylamide was most abundant during aggregation and its activity is consistent with processing specific peptides during development.