SummaryTransport of nuclear-encoded precursor proteins into mitochondria includes proteolytic cleavage of aminoterminal targeting sequences in the mitochondrial matrix. We have isolated the processing activity from Neurospora crassa. The final preparation (enriched ca. lO,OOO-fold over cell extracts) consists of two proteins, the matrix processing peptidase (MPP, 57 kd) and a processing enhancing protein (PEP, 52 kd). The two components were isolated as monomers. PEP is about l&fold more abundant in mitochondria than MPP It is partly associated with the inner membrane, while MPP is soluble in the matrix. MPP alone has a low processing activity whereas PEP alone has no apparent activity. Upon recombining both, full processing activity is restored. Our data indicate that MPP contains the catalytic site and that PEP has an enhancing function. The mitochondrial processing enzyme appears to represent a new type of "signal peptidase,' different from the bacterial leader peptidase and the signal peptidase of the endoplasmic reticulum.