Cleavage of preprolactin (pPL) by detergent-solubilized signal peptidase produced mature prolactin and two small peptides derived from the signal peptide region of the pPL molecule. The production of both peptides was dependent on functional signal peptidase; the peptides were not generated at detergent concentrations that abolished signal peptidase activity. The amount of both peptides was proportional to the concentration of signal peptidase in the assay. The appearance of both peptides was insensitive to protease inhibitors, as was signal peptidase activity. The size, labeling characteristics, and amino acid sequence of the larger peptide, peptide 1, corresponded to those of the intact signal peptide of pPL. The smaller peptide, peptide 2, lacked the carboxy terminus of the signal peptide, and was, therefore, a fragment of intact signal peptide. These results demonstrate the endoproteolytic nature of signal peptidase.