Des-(1-3) insulin-like growth factor-I (IGF-I), a more potent IGF-I variant, has been isolated from biological fluids and tissue extracts. The mechanisms involved in this posttranslational modification of IGF-I have not been elucidated. In this study we demonstrated the presence in rat serum of an acid protease activity that is capable of generating des-(1-3) IGF-I from intact IGF-I. An assay for measuring this enzyme activity using an immobilized synthetic substrate, biotin-G-P-E-T-L-C, that includes the site of cleavage of intact IGF-I was developed. Using this assay, the time, temperature, and pH dependency of the enzyme activity was investigated. Although some activity was observed under neutral conditions, the optimal pH was pH 5.5. Of a variety of commercially available proteases tested, only trypsin and cathepsin-D had activity. In contrast to the serum enzyme activity, trypsin was more active at pH 7.5 than at pH 5.5, and cathepsin-D resulted in extensive proteolysis of IGF-I. Soybean trypsin inhibitor, alpha 1-antitrypsin, and pepstatin-A were able to partially inhibit the serum enzyme activity. This enzymatic activity was partially purified from serum by acid-ethanol extraction (6-fold) and further purified by pepstatin-A affinity chromatography (200-fold). The partially purified enzyme had characteristics similar to those of the activity measured in serum. The enzymatic conversion of [125I]IGF-I to [125I]des-(1-3) IGF-I in serum was confirmed by immunoprecipitation using antibody to an N-terminal fragment of IGF-I (residues 1-9), which could recognize intact IGF-I, but not des-(1-3) IGF-I (< 3% cross-reactivity), and by size-exclusion HPLC analysis. When [125I]IGF-I was incubated with serum, only the 7.5-kilodalton free IGF-I fraction contained the des-(1-3) IGF-I variant. [125I]des-(1-3) IGF-I was not detected in the 150- to 200- or 50-kilodalton IGF-I-binding protein complexes. These findings demonstrate that des-(1-3) IGF-I can be generated in serum at neutral pH and that this process may be enhanced under the acidic conditions that occur in the pericellular environment.