The conversion of inactive precursor proteins into bioactive neuropeptides and peptide hormones involves regulated secretory proteins such as prohormone convertases PC1 and PC2. The neuroendocrine protein 7B2 represents a specific binding protein for PC2, and the protein proSAAS, which interacts with PC1, exhibits certain structural and functional homologies with 7B2. With the intention of better understanding the physiological role of proSAAS and its derived peptides, we investigated its tissue localization using a new radioimmunoassay (RIA) to a C-terminal proSAAS-derived peptide. Immunoreactivity corresponding to this SAAS-derived peptide is mostly localized to the brain and gut. Analysis of the brain distribution of the proSAAS-derived peptides indicates that the hypothalamus and pituitary are the two richest areas, consistent with the previously described high expression of PC1 in these two areas. In order to investigate the cleavage of proSAAS by prohormone convertases, we incubated recombinant His-tagged proSAAS with recombinant mouse proPC2 or furin, separated the cleavage products using high-pressure gel permeation chromatography and analyzed the products by RIA. Our results indicate that either PC2 or furin can accomplish in vitro rapid removal and efficient internal processing of the C-terminal peptide, exposing the inhibitory hexapeptide to possible further digestion by carboxypeptidases. Finally, we also studied proSAAS processing in the brains of wild-type and PC2 null mice and found that proSAAS is efficiently processed in vivo. Whereas the C-terminal peptide is mostly internally cleaved in wild-type mouse brain, it is not processed as efficiently in the brain of PC2 null mice, suggesting that PC2 is partially responsible for this cleavage in vivo.