Cephalosporin acylase (CA) is a recently identified N-terminal hydrolase. It is also a commercially important enzyme in producing 7-aminocephalosporanic acid (7-ACA), a backbone chemical in synthesizing semi-synthetic cephalosporin antibiotics. CA is translated as an inactive single chain precursor, being post-translationally modified into an active enzyme. The post-translational modification takes place in two steps. The first intramolecular autocatalytic proteolysis takes place at one end of the spacer peptide by a nucleophilic Ser or Thr, which in turn becomes a new N-terminal Ser or Thr. The second intermolecular modification cleaves off the other end of the spacer peptide by another CA. Two binary structures in complex with glutaryl-7-ACA (the most favored substrate of CAs) and glutarate (side chain of glutaryl-7-ACA) were determined, and they revealed the detailed interactions of glutaryl-7-ACA with the active site residues (Y. Kim and W. G. J. Hol (2001) Chem. Biol., in press). In this report: 1) we have mutated key active site residues into nonfunctional amino acids, and their roles in catalysis were further analyzed; 2) we performed mutagenesis studies indicating that secondary intermolecular modification is carried out in the same active site where deacylation reaction of CA occurs; and 3) the cleavage site of secondary intermolecular modification by another CA was identified in the spacer peptide using mutational analysis. Finally, a schematic model for intermolecular cleavage of CA is proposed.