A chymostatin-sensitive step in the release of plasminogen activator from transformed fibroblasts has been described recently. By using synthetic peptidyl substrates, we have detected and characterized a chymostatin-sensitive peptidase activity in chicken embryo fibroblasts transformed by Rous sarcoma virus. The activity represents a neutral endopeptidase that exhibits phenylalanine specificity and is inhibited by diisopropyl fluorophosphate. A detailed inhibitor profile of the enzyme activity shows that it is distinct from other chymotrypsin-like phenylalanine-preferring peptidases. The endopeptidase activity in transformed fibroblasts is increased over that of parallel cultures of normal fibroblasts. The mechanism of enzyme inhibition by chymostatin is indicated by these studies, and the possible role of the enzyme in modulating plasminogen activator secretion is discussed.