The recognition of lysine-type peptidoglycans (PG) by the PG recognition complex has been suggested to cause activation of the serine protease cascade leading to the processing of Spätzle and subsequent activation of the Toll signaling pathway. So far, two serine proteases involved in the lysine-type PG Toll signaling pathway have been identified. One is a modular serine protease functioning as an initial enzyme to be recruited into the lysine-type PG recognition complex. The other is the Drosophila Spätzle processing enzyme (SPE), a terminal enzyme that converts Spätzle pro-protein to its processed form capable of binding to the Toll receptor. However, it remains unclear how the initial PG recognition signal is transferred to Spätzle resulting in Toll pathway activation. Also, the biochemical characteristics and mechanism of action of a serine protease linking the modular serine protease and SPE have not been investigated. Here, we purified and cloned a novel upstream serine protease of SPE that we named SAE, SPE-activating enzyme, from the hemolymph of a large beetle, Tenebrio molitor larvae. This enzyme was activated by Tenebrio modular serine protease and in turn activated the Tenebrio SPE. The biochemical ordered functions of these three serine proteases were determined in vitro, suggesting that the activation of a three-step proteolytic cascade is necessary and sufficient for lysine-type PG recognition signaling. The processed Spätzle by this cascade induced antibacterial activity in vivo. These results demonstrate that the three-step proteolytic cascade linking the PG recognition complex and Spätzle processing is essential for the PG-dependent Toll signaling pathway.