Lactacystin was isolated from the culture broth of Streptomyces lactacystinaeus as an inducer of neurite outgrowth in Neuro 2a cells (a mouse neuroblastoma cell line). The structure of lactacystin, elucidated by spectroscopic analyses including NMR and X-ray crystallography, possesses a non-peptide skeleton consisting of two alpha-amino acids, N-acetylcysteine and a novel pyroglutamic acid derivative. Extensive studies on its mode of action revealed that lactacystin inhibits proteasome, a high molecular weight, multicatalytic protease complex responsible for most non-lysosomal intracellular protein degradation, by binding covalently to the active site N-terminal threonine residue in certain beta-subunits of proteasome. Lactacystin and its cell-permeable beta-lactone form, later designated omuralide by Prof. E. J. Corey, which are structurally different from the synthetic peptide aldehydes, are much more specific proteasome inhibitors. The demonstration of this lactacystin action gave decisive understanding of proteasome as a novel threonine protease. Since then, specific inhibitors have allowed researchers to simplify studies of proteasome functions, leading to many unexpected findings about the importance of the ubiquitin-proteasome pathway in various cellular processes, such as cell cycle, apoptosis, antigen presentation and the degradation of regulatory or membrane proteins. In this review, potential biomedical applications are also described.