Formation of PrP aggregates is considered to be a characteristic event in the pathogenesis of TSE diseases, accompanied by brain inflammation and neurodegeneration. Factors identified as contributing to aggregate formation are of interest as potential therapeutic targets. We report that in vitro proteolysis of ovine PrP(94-233) (at neutral pH and in the absence of denaturants) by the protease cathepsin S, a cellular enzyme that also shows enhanced expression in pathogenic conditions, occurs selectively in the region 135-156. This results in an unusually efficient, concentration-dependent conformational conversion of a large subfragment of PrP(94-233) into a soluble beta-structured oligomeric intermediate species, that readily forms a thioflavin-T-positive aggregate. N-terminal sequencing of the proteolysis fragments shows the aggregating species have marked sequence similarities to truncated PrP variants known to confer unusually severe pathogenicity when transgenically expressed in PrP(o/o) mice. Circular dichroism analysis shows that PrP fragments 138-233, 144-233 and 156-233 are significantly less stable than PrP(94-233). This implies an important structural contribution of the beta1 sequence within the globular domain of PrP. We propose that the removal or detachment of the beta1 sequence enhances beta-oligomer formation from the globular domain, leading to aggregation. The cellular implications are that specific proteases may have an important role in the generation of membrane-bound, potentially toxic, beta-oligomeric PrP species in pre-amyloid states of prion diseases. Such species may induce cell death by lysis, and also contribute to the transport of PrP to neuronal targets with subsequent amplification of pathogenic effects.