We describe a novel approach to the production in E. coli of a peptide fragment derived from the human parathyroid hormone (hPTH). The first 38 amino acids of hPTH were fused at the amino terminus to a derivative of the bacteriophage T4-encoded gp55 protein, and were expressed in the E. coli cytoplasm in inclusion bodies at levels exceeding 50% of the total cell protein. Solubilization and subsequent incubation of the inclusion bodies in dilute hydrochloric acid facilitated the cleavage of an acid-labile aspartyl-prolyl peptide bond engineered into the fusion protein, thus releasing the hormone fragment directly from the inclusion body preparation. The amino-terminal prolyl-prolyl dipeptide-extension was subsequently removed by treatment with Lactococcus lactis dipeptidyl peptidase IV which was overexpressed in E. coli and purified to near homogeneity from the cytosol of the recombinant bacteria. In pilot-scale fermentations, more than 80 mg of pure hPTH(1-38) were isolated per liter of bacterial culture, with an overall yield of 35%. This process is suitable for scale-up, is cost effective, and by employing recombinant dipeptidyl peptidase IV, should be widely and directly applicable to the manufacturing of peptides of pharmaceutical interest.