Production of streptolysin S by streptococci was found to be inhibited by treatment with protease inhibitors, tosylphenylalanine chloromethyl ketone (TPCK), tosyllysine chloromethyl ketone (TLCK), or phenylmethylsulfonyl fluoride (PMSF), even in the presence of the inducer oligonucleotides. Other protease inhibitors, antipain, leupeptin, or pepstatin were found to have little or no effect. Trypsin reversed the effect of TPCK or TLCK. The reversal was dependent upon the amount of added trypsin and the incubation time at 37 degrees C, suggesting that a protease activity was involved in the hemolysin formation. The effect of trypsin was not observed if chloramphenicol was also added, suggesting that a precursor of streptolysin S was processed as it was synthesized and released into medium as the active hemolysin, by the concerted action of a protease and inducer oligonucleotides. Experiments with the subcellular fractions of streptococci indicated that the streptolysin precursor was localized in the insoluble fraction and the "processing" protease in the supernatant fraction.