Kex1p is a prohormone-processing serine carboxypeptidase found in Saccharomyces cerevisiae. In contrast to yeast serine carboxypeptidase (CPD-Y) and wheat serine carboxypeptidase II (CPDW-II), Kex1p displays a very narrow specificity for lysyl or arginyl residues at the C-terminus of the substrate. The structure of Kex1Deltap, an enzyme that lacks the acidic domain and membrane-spanning portion of Kex1p, has been solved by a combination of molecular replacement and multiple isomorphous replacement and refined to a resolution of 2.4 A. The S1' site of Kex1Deltap is sterically restricted compared to those from CPD-Y or CPDW-II; it also contains two acidic groups that are well positioned to interact with the basic group of a lysine or arginine side chain. The high specificity of Kex1p can therefore be explained by a combination of steric and electronic factors. The structure of the S1 site of Kex1Deltap is also well suited for binding of a lysine or arginine side chain, and the enzyme may therefore exhibit a preference for these residues at P1.