Two open reading frames (ORFs) were identified immediately downstream of the four structural genes for the soluble hydrogenase (SH) of Alcaligenes eutrophus H16. While a mutation in ORF2 had no obvious effect on hydrogen metabolism, an in-frame deletion in ORF1, subsequently designated hoxW, led to a complete loss of SH activity and hence a significant retardation of autotrophic growth on hydrogen. Hydrogen oxidation in the hoxW mutant was catalyzed by the second hydrogenase, a membrane-bound enzyme. Assembly of the four subunits of the SH was blocked in mutant cells, and HoxH, the hydrogen-activating subunit, accumulated as a precursor which was still capable of binding nickel. Protein sequencing revealed that HoxH isolated from the wild type terminates at His-464, whereas the C-terminal amino acid sequence of HoxH from the hoxW mutant is colinear with the deduced sequence. Processing of the HoxH precursor was restored in vitro by a cell extract containing HoxW. These results indicate that HoxW is a highly specific carboxyl-terminal protease which releases a 24-amino-acid peptide from HoxH prior to progression of subunit assembly.