An enzyme capable of cleaving dynorphin B-29 to dynorphin B-13 is present in bovine pituitary, with 40- to 50-fold higher specific activity in the posterior and intermediate lobes than in the anterior lobe. Subcellular fractionation of bovine neurointermediate pituitary shows that this enzyme is present in the peptide-containing secretory vesicles. The enzyme has been purified 2,800-fold from whole bovine pituitaries using ion-exchange and gel filtration chromatography. Purified dynorphin-converting enzyme has a neutral pH optimum, and is subsantially inhibited by the thiol-protease inhibitor p-chloromercuriphenylsulfonic acid, but not by serine or metalloprotease inhibitors. The purified enzyme processes dynorphin B-29 at Arg14, producing both dynorphin B-14 and dynorphin B-13 in a 5:1 ratio. No other cleavages are observed, suggesting that the activity is free from other proteases and is specific for single Arg sequences. Purified enzyme also processes dynorphin A-17 at the single Arg cleavage site, generating both dynorphin A-8 and A-9 in a 7:1 ratio. The tissue distribution, subcellular localization, and substrate specificity of this enzyme are consistent with a physiological role in the processing of dynorphin B-29 and dynorphin A-17, and possibly other peptides, at single Arg residues.