An enzyme present in mouse brain cytosol cleaves C-terminal dipeptides from substrates including ACTH-(7-10) (Phe-Arg-Trp-Gly), and des-Tyr-[Met]- and des-Tyr-[Leu]enkephalin. By means of ion-exchange chromatography and gel filtration, the peptidase was purified to a specific activity of 1570 times that of brain homogenate. At this purification, a second peptidase, which hydrolyzes Trp-Gly and other peptides [M. E. A. Reith and A. Neidle (1979) Biochem. Biophys. Res. Commun. 90, 794-800] was still present, but could be removed by preparative polyacrylamide gel electrophoresis. The des Tyr-enkephalin-cleaving enzyme has a molecular weight of about 85,000 and a pH optimum of 7.8. It is inhibited by metal-chelating and sulfhydryl reagents. The enzyme has a strong preference for substrates with an aromatic residue in the position adjacent to the C-terminal amino acid, although some peptides meeting this criterion were competitive inhibitors rather than substrates. Peptides with less than four residues were inactive and, in general, tetrapeptides were found to be more reactive than larger analogs, when peptides with common C-terminal sequences were compared. The peptidyl dipeptidase, which has not been described previously, can be readily distinguished from angiotensin-converting enzyme (EC 3.4.15.1) and from neutral endopeptidase (EC 3.4.24.11) by its subcellular localization, substrate specificity, and response to inhibitors. It was suggested that peptidyl dipeptidase-B (PDP-B, EC 3.4.15.-) would be an appropriate name for the enzyme. PDP-B is widely distributed among mouse tissues.