Fungi are capable of degrading proteins in their environment by secreting peptidases. However, the link between extracellular digestion and intracellular proteolysis has scarcely been investigated. Mycelial lysates of the filamentous fungus Talaromyces emersonii were screened for intracellular peptidase production. Five distinct proteolytic activities with specificity for the p-nitroanilide (pNA) peptides Suc-AAPF-pNA, Suc-AAA-pNA, K-pNA, F-pNA and P-pNA were identified. The native enzyme responsible for the removal of N-terminal proline residues was purified to homogeneity by ammonium sulfate fractionation followed by five successive chromatographic steps. The enzyme, termed Talaromyces emersonii prolyl aminopeptidase (TePAP), displayed a 50-fold specificity for cleaving N-terminal Pro-X (k(cat)/K(m)=2.1 x 10(6) M(-1) s(-1)) compared with Ala-X or Val-X bonds. This intracellular aminopeptidase was optimally active at pH 7.4 and 50 degrees C. Peptide sequencing facilitated the design of degenerate oligonucleotides from homologous sequences encoding putative fungal proline aminopeptidases, enabling subsequent cloning of the gene. TePAP was shown to be relatively uninhibited by classical serine peptidase inhibitors and to be sensitive to selected cysteine- and histidine-modifying reagents, yet gene sequence analysis identified the protein as a serine peptidase with an alpha/beta hydrolase fold. Northern analysis indicated that Tepap mRNA levels were regulated by the composition of the growth medium. Highest Tepap transcript levels were observed when the fungus was grown in medium containing glucose and the protein hydrolysate casitone. Interestingly, both the induction profile and substrate preference of this enzyme suggest potential co-operativity between extracellular and intracellular proteolysis in this organism. Gel filtration chromatography suggested that the enzyme exists as a 270 kDa homo-hexamer, whereas most bacterial prolyl aminopeptidases (PAPs) are monomers. Phylogenetic analysis of known PAPs revealed two diverse subfamilies that are distinguishable on the basis of primary and secondary structure and appear to correlate with the subunit composition of the native enzymes. Sequence comparisons revealed that PAPs with key conserved topological features are widespread in bacterial and fungal kingdoms, and this study identified many putative PAP candidates within sequenced genomes. This work represents, to our knowledge, the first detailed biochemical and molecular analysis of an inducible PAP from a eukaryote and the first intracellular peptidase isolated from the thermophilic fungus T. emersonii.