Enzymological studies have implicated two Ca(2+)-dependent endopeptidases in the conversion of proinsulin to insulin; a type 1 activity which cleaves on the C-terminal side of Arg31-Arg32 and a type 2 activity which cleaves C-terminally to Lys64-Arg65 in the proinsulin sequence. The possibility that these enzymes are related to the recently discovered family of mammalian subtilisin-like gene products (furin, PC2, and PC3) and the yeast propheromone-converting enzyme (KEX-2), was investigated. Degenerate oligonucleotide primers flanking the putative catalytic domain within this gene family were used in a polymerase chain reaction to amplify related sequences from rat insulinoma cDNA. One major product of 700 base pairs was obtained which was greater than 99% identical to the corresponding rat PC2 sequence. This cDNA was subcloned into the bacterial expression vector pGEX-3X to generate a recombinant protein for antibody production. Western blot analysis showed the immunoreactivity was prominent in neuroendocrine tissues as a 65-kDa protein. It was concentrated in secretory granule-enriched fractions of insulinoma tissue, where it was present as a readily solubilized monomeric protein. Deglycosylation studies using endoglycosidase H and N-glycanase showed that the 65-kDa protein was comprised of approximately 9% carbohydrate, consistent with the presence of three consensus sequences for N-linked glycosylation in rat PC2. The immunoreactivity co-eluted with the type 2 proinsulin endopeptidase on gel filtration and ion-exchange chromatography and the antisera specifically immunoprecipitated type 2 activity from insulin granule extracts. N-terminal sequence analysis of the immunoreactive protein gave two sequences which corresponded to residues 109-112 and 112-119 of rat PC2. This indicated that posttranslational processing of PC2 itself occurs C-terminally to basic amino acids to produce the mature enzyme. It is concluded that PC2 is the type 2 endopeptidase involved in proinsulin conversion. Localization of PC2 immunoreactivity to other tissues of the diffuse neuroendocrine system suggests that the type 2 endopeptidase also functions in the processing of precursor forms of other prohormones and polypeptide neurotransmitters.