Prolyl endopeptidase (PREP), probably acting through the inositol cycle, has been implicated in memory and learning. However, the physiological role of PREP is unknown. It has been shown that PREP expression, regulated in cerebellar granule cells, has probably a role in cell proliferation and differentiation. Here, we report the levels and subcellular distribution of PREP in human neuroblastoma SH-SY5Y cells in proliferating conditions and under differentiation induced by retinoic acid (RA). We analysed the levels of cell signalling intermediates, growth behavior and gene expression, and differentiation morphology changes, upon PREP inhibition. After induction of differentiation, PREP activity was found decreased in the nucleus but increased to high levels in the cytoplasm, due in part to increased PREP transcription. The levels of inositol (1,4,5)-trisphosphate revealed no correlation with PREP activity, but phosphorylated extracellular signal-regulated kinases 1 and 2 were decreased by PREP inhibition during early stages of differentiation. Morphological evaluation indicated that PREP inhibition retarded the onset of differentiation. PREP activity regulated gene expression of protein synthesis machinery, intracellular transport and kinase complexes. We conclude that PREP is a regulatory target and a regulatory element in cell signalling. This is the first report of a direct influence of a cell signalling molecule, RA, on PREP expression.