We have screened a phage-displayed random peptide library for binding to C3b, the proteolytically activated form of complement component C3, and have identified a novel peptide that suppresses complement activation. This phage-displayed peptide bound to C3, C3b, and C3c, but not to C3d, indicating that it binds to the C3c region of C3. A synthetic 27-amino acid peptide corresponding to the phage-displayed peptide also bound to C3 and C3 fragments and inhibited both the classical and alternative pathways of complement activation. The inhibition of complement activation was reversible. Studies with overlapping peptides indicated that the functional activity was located in the cyclic 13-amino acid N-terminal region (ICVVQDWGHHRCT) of the parent peptide. Reduction and alkylation of this 13-residue synthetic peptide destroyed its inhibitory activity. Analysis of the mechanism of inhibition revealed that the peptide inhibited C3 cleavage in normal human serum as well as when the alternative pathway was reconstituted with purified complement components, and the observed inhibition was not due to sterically hindered access to the C3a/C3b cleavage site. Further, the peptide did not inhibit the cleavage of factor B, indicating that it did not affect the interaction of CA with factor B or the formation of C3b,Bb. The peptide also had no effect on the binding of properdin to C3, demonstrating that the observed inhibition of C3 cleavage in normal human serum was not due in part to its effect on the properdin-stabilized C3 convertase, C3b,Bb,P. These results indicate that the peptide we have identified interacts with C3 to inhibit its activation.