A stretch of 10 consecutive dipeptides with the sequence -X-Ala- or -X-Pro-, possible cleavage sites for dipeptidyl aminopeptidase (DPAPase) activity, are located in the prepro-region of the alkaline extracellular protease (AEP) beginning at Leu14. Evidence for DPAPase processing of this dipeptide stretch was obtained by characterizing the polypeptide secreted by a strain carrying a xpr6 mutation. The secreted polypeptide reacted with antibodies specific for AEP and was essentially identical to the 52-kilodalton intracellular AEP precursor based on mobility during sodium dodecyl sulfate-polyacrylamide gel electrophoresis, content of N-linked carbohydrate, and peptide mapping. Amino-terminal amino acid sequencing of this secreted precursor revealed that it consisted of at least three major polypeptides. One began at the end of the stretch of dipeptides, and two of the others began two and four amino acids upstream. These results confirm that DPAPase activity is involved in the formation of the 52-kilodalton AEP precursor. In other reported cases of DPAPase processing, the dipeptides are located directly upstream of the mature polypeptide. For AEP, the dipeptide stretch is located over 120 amino acids upstream from the N terminus of mature AEP. The novel location of the dipeptide stretch may provide a mechanism for preventing premature activation of AEP in the secretory pathway.