We have previously identified a 13-residue cyclic peptide, Compstatin, that binds to complement component C3 and inhibits complement activation. Herein, we describe the binding kinetics, structure-activity relationship, and biotransformation of Compstatin. Biomolecular interaction analysis using surface-plasmon resonance showed that Compstatin bound to native C3 and its fragments C3b and C3c, but not C3d. While binding of Compstatin to native C3 was biphasic, binding to C3b and C3c followed the 1:1 Langmuir binding model; the affinities of Compstatin for C3b and C3c were 22- and 74-fold lower, respectively, than that of native C3. Analysis of Compstatin analogs synthesized for structure-function studies indicated that 1) the 11-membered ring between disulfide-linked Cys2-Cys12 constitutes a minimal structure required for optimal activity; 2) retro-inverso isomerization results in loss of inhibitory activity; and 3) some residues of the type I beta-turn segment also interact with C3. In vitro studies of Compstatin in human blood indicated that a major pathway of biotransformation was the removal of Ile1, which could be blocked by N-acetylation of the peptide. These findings indicate that acetylated Compstatin is stable against enzymatic degradation and that the type I beta-turn segment is not only critical for preservation of the conformational stability, but also involved in intermolecular recognition.