The proenzyme activation peptides predicted from cDNAs encoding each of the granule serine proteases synthesized by cytotoxic lymphocytes and myeloid and mast cells are composed of 2 residues. The mechanism by which these amino-terminal dipeptides are cleaved to generate the active enzymes has not been elucidated. The comparable distribution of dipeptidyl peptidase I (DPPI) and serine proteases and the ability of DPPI to hydrolyze relevant dipeptide sequences suggested a role for DPPI in the processing and activation of granule serine proteases. This study demonstrates that inhibition of DPPI activity is associated with impairment of the generation of granule serine protease activity in CD8(+) T cells, lymphokine-activated killer cells, P815 mastocytoma cells, and U-937 myeloid cells. Inhibition of DPPI resulted in impairment of the generation of cathepsin G enzymatic activity without reduction in the amount of immunoreactive cathepsin G produced. In U-937 cells pulsed with [3H]isoleucine, inhibition of DPPI activity was associated with the accumulation of the inactive proenzyme form of cathepsin G bearing an amino-terminal dipeptide extension to the isoleucine residue that normally occupies the amino terminus of the enzymatically active protein. These results indicate that DPPI plays a requisite role in the post-translational processing and activation of members of the family of granule serine proteases expressed in bone marrow-derived effector cells.