Proteolytic processing of proenkephalin and proneuropeptides is required for the production of active neurotransmitters and peptide hormones. Variations in the extent of proenkephalin processing in vivo suggest involvement of endogenous protease inhibitors. This study demonstrates that "protease nexin 2 (PN2)," the secreted form of the kunitz protease inhibitor (KPI) of the amyloid precursor protein (APP), potently inhibited the proenkephalin processing enzyme known as prohormone thiol protease (PTP), with a K i,app of 400 nM. Moreover, PTP and PN2 formed SDS-stable complexes that are typical of kunitz protease inhibitor interactions with target proteases. In vivo, KPI/APP (120 kDa), as well as a truncated form of KPI/APP that resembles PN2 in apparent molecular mass (110 kDa), were colocalized with PTP and (Met)enkephalin in secretory vesicles of adrenal medulla (chromaffin granules). KPI/APP (110 -120 kDa) was also detected in pituitary secretory vesicles that contain PTP. In chromaffin cells, calcium-dependent secretion of KPI/APP with PTP and (Met)enkephalin demonstrated the colocalization of these components in functional secretory vesicles. These results suggest a role for KPI/APP inhibition of PTP in regulated secretory vesicles. In addition, these results are the first to identify an endogenous protease target of KPI/APP, which is developmentally regulated in aging and Alzheimer's disease.Peptide neurotransmitters and hormones are synthesized as protein precursors that require proteolytic processing to generate active neuropeptides. Proneuropeptide precursors are routed from the rough endoplasmic reticulum to Golgi apparatus and secretory vesicles (1, 2). The presence of proneuropeptides and processed peptide products within secretory vesicles indicates that corresponding proteases for proneuropeptide processing are largely present within such vesicles. Secretory vesicles of adrenal medulla, known as chromaffin granules, have been widely used as a model system for studying neuropeptide biosynthetic enzymes (2-4). These vesicles contain several neuropeptides, including high levels of enkephalin opioid peptides (5-7) and neuropeptide Y (8), as well as galanin (9), somatostatin (7), and others.In our studies of proneuropeptide processing enzymes in chromaffin granules, the major proenkephalin processing enzyme was identified as a novel cysteine protease known as prohormone thiol protease (PTP) 1 (2, 10 -14). PTP cleaves proenkephalin at dibasic and monobasic basic residues (Arg and Lys) to generate enkephalin-related peptides that are present in adrenal medulla in vivo (12,13,15,16). Proenkephalin processing in chromaffin granules is also mediated, to a lesser degree, by the subtilisin-like prohormone convertase 1 (PC1) and PC2 enzymes (17) and by a 70-kDa aspartyl protease resembling the pituitary proopiomelanocortin-converting enzyme (18).It is known that the extent of proenkephalin processing in adrenal medulla, in vivo, is limited, because only 10% of (Met)-enkephalin exists as completely processed pent...