The mammalian neprilysin (NEP) family members are typically type II membrane endopeptidases responsible for the activation/inactivation of neuropeptides and peptide hormones. Differences in substrate specificity and subcellular localization of the seven mammalian NEPs contribute to their functional diversity. The sequencing of the Drosophila melanogaster genome has revealed a large expansion of this gene family, resulting in over 20 fly NEP-like genes, suggesting even greater diversity in structure and function than seen in mammals. We now report that one of these genes (Nep2) codes for a secreted endopeptidase with a highly restricted pattern of expression. D. melanogaster NEP2 is expressed in the specialized stellate cells of the renal tubules and in the cyst cells that surround the elongating spermatid bundles in adult testis, suggesting roles for the peptidase in renal function and in spermatogenesis. D. melanogaster NEP2 was found in vesicle-like structures in the syncytial cytoplasm of the spermatid bundles, suggesting that the protein was acquired by endocytosis of protein secreted from the cyst cells. Expression of NEP2 cDNA in D. melanogaster S2 cells confirmed that the peptidase is secreted and is only weakly inhibited by thiorphan, a potent inhibitor of human NEP. D. melanogaster NEP2 also differs from human NEP in the manner in which the peptidase cleaves the tachykinin, GPSGFYGVR-amide. Molecular modelling suggests that there are important structural differences between D. melanogaster NEP2 and human NEP in the S1' and S2' ligand-binding subsites, which might explain the observed differences in inhibitor and substrate specificities. A soluble isoform of a mouse NEP-like peptidase is strongly expressed in spermatids, suggesting an evolutionarily conserved role for a soluble endopeptidase in spermatogenesis.