Members of the kexin family of processing enzymes are responsible for the cleavage of many proproteins during their transport through the secretory pathway. The enzymes themselves are made as inactive precursors, and we investigated the activation process by studying the maturation of Krp1, a kexin from the fission yeast Schizosaccharomyces pombe. Using a cell-free translation-translocation system prepared from Xenopus eggs, we found that Krp1 is made as a preproprotein that loses the presequence during translocation into the endoplasmic reticulum. The prosequence is also rapidly cleaved in a reaction that is autocatalytic and probably intramolecular and is inhibited by disruption of the P domain. Prosequence cleavage normally occurs at Arg-Tyr-Lys-Arg102/ (primary cleavage site) but can occur at Lys-Arg82 (internal cleavage site) and/or Trp-Arg99 when the basic residues are removed from the primary site. Cleavage of the prosequence is necessary but not sufficient for activation, and Krp1 is initially unable to process substrates presented in trans. Full activation is achieved after further incubation in the extract and is coincident with the addition of O-linked sugars. O glycosylation is not, however, essential for activity, and the crucial event appears to be cleavage of the initially cleaved prosequence at the internal site. Our results are consistent with a model in which the cleaved prosequence remains noncovalently associated with the catalytic domain and acts as an autoinhibitor of the enzyme. Inhibition is then relieved by a second (internal) cleavage of the inhibitory prosequence. Further support for this model is provided by our finding that overexpression of a Krp1 prosequence lacking a cleavable internal site dramatically reduced the growth rate of otherwise wild-type S. pombe cells, an effect that was not seen after overexpression of the normal, internally cleavable, prosequence or prosequences that lack the Lys-Arg102 residues.