Streptomyces coelicolor produces an extracellular protease inhibitor protein, STI (Streptomyces trypsin inhibitor). We show that post-growth elimination of STI is needed for colonies to develop aerial mycelium efficiently. Inactivation of STI, and thus the normal progression of colony development, at least partly involves an extracellular protease specified by gene SCO5913. Two-hybrid analysis identified two possible targets of STI inhibition (the products of SCO1355 and SCO5447), both extracellular proteases containing a domain homologous with the P-domain of eukaryotic convertases, proteases that mediate the processing of many precursors with important cellular or developmental roles. At least the SCO1355 protease is needed for the normal progression of development. Two components of the proposed cascade are dependent on the tRNA for the rare UUA (leucine) codon, which is specified by the developmental gene bldA. A model is presented that links intracellular regulatory events with an extracellular protease cascade to facilitate normal development.