Vacuolar processing enzyme (VPE) is a cysteine proteinase responsible for the maturation of various vacuolar proteins in higher plants. To clarify the mechanism of maturation and activation of VPE, we expressed the precursors of Arabidopsis gamma VPE in insect cells. The cells accumulated a glycosylated proprotein precursor (pVPE) and an unglycosylated preproprotein precursor (ppVPE) which might be unfolded. The N-terminal sequence of pVPE revealed that ppVPE had a 22-amino-acid signal peptide to be removed co-translationally. Under acidic conditions, the 56-kDa pVPE was self-catalytically converted to a 43-kDa intermediate form (iVPE) and then to the 40-kDa mature form (mVPE). N-terminal sequencing of iVPE and mVPE showed that sequential removal of the C-terminal propeptide and N-terminal propeptide produced mVPE. Both iVPE and mVPE exhibited the activity, while pVPE exhibited no activity. These results imply that the removal of the C-terminal propeptide is essential for activating the enzyme. Further removal of the N-terminal propeptide from iVPE is not required to activate the enzyme. To demonstrate that the C-terminal propeptide functions as an inhibitor of VPE, we expressed the C-terminal propeptide and produced specific antibodies against it. We found that the C-terminal propeptide reduced the activity of VPE and that this inhibitory activity was suppressed by specific antibodies against it. Our findings suggest that the C-terminal propeptide functions as an auto-inhibitory domain that masks the catalytic site. Thus, the removal of the C-terminal propeptide of pVPE might expose the catalytic site of the enzyme.