Lactacystin is a Streptomyces metabolite that inhibits cell cycle progression and induces differentiation in a murine neuroblastoma cell line. The cellular target of lactacystin is the 20 S proteasome, also known as the multicatalytic proteinase complex, an essential component of the ubiquitin-proteasome pathway for intracellular protein degradation. In aqueous solution at pH 8, lactacystin undergoes spontaneous hydrolysis to yield N-acetyl-L-cysteine and the inactive lactacystin analog, clasto-lactacystin dihydroxy acid. We have studied the mechanism of lactacystin hydrolysis under these conditions and found that it proceeds exclusively through the intermediacy of the active lactacystin analog, clasto-lactacystin beta-lactone. Conditions that stabilize lactacystin (and thus prevent the transient accumulation of the intermediate beta-lactone) negate the ability of lactacystin to inactivate the proteasome. Together these findings suggest that lactacystin acts as a precursor for clasto-lactacystin beta-lactone and that the latter is the sole species that interacts with the proteasome.