We have described the characterization of a protein initially identified as having an essential function in biogenesis of polar pili of P. aeruginosa by processing precursors of pilin. Other findings have also expanded the range of substrates for PilD to include a set of proteins that are essential components of the extracellular secretion machinery. Direct demonstration of prepilin processing necessitates use of purified substrates and enzymes, and we present general protocols for purification of both enzymes and substrates, as well as an assay for prepilin peptidase activity. For a source of enzyme and substrates, mutants of P. aeruginosa defective in pilin processing as well as clones overexpressing the pilin gene and PilD were developed. These methods are applicable to other bacterial systems that express Type IV pili and/or possess the PilD-dependent machinery of extracellular protein secretion. PilD is a bifunctional enzyme, which carries out not only cleavage but also amino-terminal methylation of the mature pilin. Cleavage and N-methylation of the pilin-like Xcp proteins involved in extracellular protein secretion have also been shown to be dependent on PilD. The leader peptidase activity of PilD is inhibited by sulfhydryl blocking reagents such as NEM and PCMB, whereas the methyltransferase activity of the purified enzyme is dependent on reduction with dithiothreitol. The conserved region containing the cysteine residues lies within the largest hydrophilic domain of the protein as predicted from hydrophobicity analysis, and it is probably exposed to the cytoplasmic side of the cytoplasmic membrane. Identification of the active site residues involved in recognition of the substrates for processing and subsequent methylation is currently underway. Studies on substrate specificities of PilD, with respect to its leader peptidase and methyltransferase activity, may prove to be useful in designing inhibitors which would interfere with maturation of Type IV prepilins and components of the extracellular protein secretion machinery. In light of the fact that an increasing number of both mammalian and plant pathogens are being shown to have extracellular secretion pathways homologous to that seen for P. aeruginosa, such inhibitors may be useful tools in the study of the role these peptidases play in bacterial virulence.