Cathepsin E is an aspartic proteinase that has been implicated in Ag processing within the class II MHC pathway. In this study, we document the presence of cathepsin E message and protein in human myeloid dendritic cells, the preeminent APCs of the immune system. Cathepsin E is found in a perinuclear compartment, which is likely to form part of the endoplasmic reticulum, and also a peripheral compartment just beneath the cell membrane, with a similar distribution to that of Texas Red-dextran within 2 min of endocytosis. To investigate the function of cathepsin E in processing, a new soluble targeted inhibitor was synthesized by linking the microbial aspartic proteinase inhibitor pepstatin to mannosylated BSA via a cleavable disulfide linker. This inhibitor was shown to block cathepsin D/E activity in cell-free assays and within dendritic cells. The inhibitor blocked the ability of dendritic cells from wild-type as well as cathepsin D-deficient mice to present intact OVA, but not an OVA-derived peptide, to cognate T cells. The data therefore support the hypothesis that cathepsin E has an important nonredundant role in the class II MHC Ag processing pathway within dendritic cells.