An extracellular protease has been isolated and partially purified from the extreme halophile Halobacterium halobium (ATCC 43214). The major enzyme component has a M(r) of 66,000 and is highly dependent upon salt concentrations near saturation for catalytic activity and stability. In aqueous solutions, a decrease in the NaCl concentration from 4 to 1 M results in an increase of nearly three orders of magnitude in the first-order rate constant of inactivation at 30 degrees C. Salt effects the stability of the enzyme in a cooperative manner, with a Hill coefficient of 4.1, which is similar to that of other enzymes from extreme halophiles. The enzyme activity is dramatically affected by the salt concentration, with a loss of 2.5 orders of magnitude in kcat/Km in going from 4 to 0 M NaCl. This loss in catalytic efficiency is primarily due to a dramatic increase in the Km for the substrate in low-salt media. Thermodynamic analysis revealed that this Km increase was mainly the result of increased solubility of the synthetic peptide substrate in low-salt media, which dramatically increases the ground-state stability of the substrate. This results in an effectively reduced substrate partitioning from the bulk solution into the enzyme's active site and an increased value of Km. The halophilic protease is also active in DMF/water mixtures, albeit with novel catalytic properties. In 33% (v/v) DMF in aqueous buffer, the esterase activity of the enzyme is ca. 80-fold higher than the corresponding amidase activity. This contrasts to the situation in pure aqueous buffer, in which the esterase activity is only fourfold higher than the amidase activity. The increased esterase activity relative to amidase activity prompted us to investigate the use of the protease in kinetically controlled peptide synthesis. The enzyme has a broad acyl donor substrate specificity and can effectively use amino acid esters of Phe, Tyr, Trp, Ser, Gly, and Ala. The enzyme is significantly more selective for the amino acid amide, preferring Gly in the P'1 site. A series of glycine-containing oligopeptides have been prepared in yields up to 76% without degradation due to secondary hydrolysis.