The LMP7 gene maps to the major histocompatibility complex class II region. The derived protein sequence shares homology with N-terminal amino acid sequence from proteasome subunits (Glynne, R., Powis, S. H., Beck, S., Kelly, A., Kerr, L.-A. and Trowsdale, J., Nature 1991. 353: 357) and it has been suggested that LMP7 is involved in the degradation of endogenous antigens prior to their presentation through class I (Robertson, M., Nature 1991. 353: 300). We have isolated a second LMP7 transcript which has a different first exon to the published sequence. Both transcripts were expressed in cell lines from a number of tissues and both responded to interferon-gamma. An anti-LMP7 antiserum precipitated proteins similar in their migration on sodium dodecyl sulfate-polyacrylamide gel electrophoresis to those precipitated by an anti-proteasome serum. Western blot analysis of anti-proteasome precipitates demonstrated that the LMP7 protein is incorporated into the proteasome but has a molecular mass of 23 kDa, 7 kDa smaller than expected fro the derived protein sequence of either of the cDNA. A pulse-chase experiment indicated that post-translational cleavage of the LMP7 N terminus precedes the formation of the 23-kDa proteasome subunit. To our knowledge, LMP7 provides the first biochemical evidence for such processing of proteasome components.