Proteolytic shedding of surface proteins during invasion by apicomplexan parasites is a widespread phenomenon, thought to represent a mechanism by which the parasites disengage adhesin-receptor complexes in order to gain entry into their host cell. Erythrocyte invasion by merozoites of the malaria parasite Plasmodium falciparum requires the shedding of ectodomain components of two essential surface proteins, called MSP1 and AMA1. Both are released by the same merozoite surface "sheddase," but the molecular identity and mode of action of this protease is unknown. Here we identify it as PfSUB2, an integral membrane subtilisin-like protease (subtilase). We show that PfSUB2 is stored in apical secretory organelles called micronemes. Upon merozoite release it is secreted onto the parasite surface and translocates to its posterior pole in an actin-dependent manner, a trafficking pattern predicted of the sheddase. Subtilase propeptides are usually selective inhibitors of their cognate protease, and the PfSUB2 propeptide is no exception; we show that recombinant PfSUB2 propeptide binds specifically to mature parasite-derived PfSUB2 and is a potent, selective inhibitor of MSP1 and AMA1 shedding, directly establishing PfSUB2 as the sheddase. PfSUB2 is a new potential target for drugs designed to prevent erythrocyte invasion by the malaria parasite.