The conversion of proglucagon and proinsulin by secretory granules isolated from both prelabeled and unlabeled anglerfish islets was investigated. Either granules isolated from tissue labeled with [3H]tryptophan and [14C]isoleucine or [35S]cysteine, or lysed granules from unlabeled tissue to which exogenously labeled prohormones had been added were incubated under various conditions. Acetic acid extracts of these granule preparations were analyzed for prohormone and hormone content by gel filtration. Both prelabeled and lysed, unlabeled secretory granules converted radiolabeled precursor peptides (Mr 8,000-15,000) to labeled insulin and glucagon. The accuracy of the cleavage process was established by demonstrating comigration of products obtained from in vitro cleavage with insulin and glucagon extracted from intact islets using electrophoresis and high-pressure liquid chromatography (HPLC). The pH optimum for granule-mediated conversion was found to be in the range of pH 4.5-5.5. Conversion of both proglucagon and proinsulin by secretory granules was significantly inhibited in the presence of antipain, leupeptin, p-chloromercuribenzoate (PCMB) or dithiodipyridine (DDP) but not chloroquine, diisopropyl fluorophosphate, EDTA, p-nitrophenyl guanidinobenzoate, soybean trypsin inhibitor, or N-p-tosyl-L-lysine chloromethyl ketone HCl. The inhibitory action of PCMB and DDP was reversed in the presence of dithiothreitol. Both membranous and soluble components of the secretory granules possessed significant converting activity. HPLC and electrophoretic analysis of cleavage products demonstrated that the converting activities of the membranous and soluble components were indistinguishable. The amount of inhibition of proinsulin and proglucagon conversion caused by 600 micrograms/ml porcine proinsulin was significantly lower than that caused by the same concentration of unlabeled anglerfish precursor peptides. These results indicate that the proinsulin and proglucagon converting enzyme(s) in the anglerfish pancreatic islet is a unique intracellular thiol proteinase(s) that may be granule membrane-associated and may require the presence of prohormone sequences in addition to the dibasic residues at cleavage sites for substrate recognition and/or binding.