Intramembrane proteases have the unusual property of cleaving peptide bonds within the lipid bilayer, an environment not obviously suited to a water-requiring hydrolysis reaction. These enzymes include site-2 protease, gamma-secretase/presenilin, signal peptide peptidase and the rhomboids, and they have a wide range of cellular functions. All have multiple transmembrane domains and, because of their high hydrophobicity, have been difficult to purify. We have now developed an in vitro assay to monitor rhomboid activity in the detergent solubilised state. This has allowed us to isolate for the first time a highly pure rhomboid with catalytic activity. Our results suggest that detergent-solubilised rhomboid activity mimics its activity in biological membranes in many aspects. Analysis of purified mutant proteins suggests that rhomboids use a serine protease catalytic dyad instead of the previously proposed triad. This analysis also suggests that other conserved residues participate in subsidiary functions like ligand binding and water supply. We identify a motif shared between rhomboids and the recently discovered derlins, which participate in translocation of misfolded membrane proteins.