Most mitochondrial proteins are encoded in the nucleus as precursor proteins and carry N-terminal presequences for import into the organelle. The vast majority of presequences are proteolytically removed by the mitochondrial processing peptidase (MPP) localized in the matrix. A subset of precursors with a characteristic amino acid motif is additionally processed by the mitochondrial intermediate peptidase (MIP) octapeptidyl aminopeptidase 1 (Oct1), which removes an octapeptide from the N-terminus of the precursor intermediate. However, the function of this second cleavage step is elusive. In this paper, we report the identification of a novel Oct1 substrate protein with an unusual cleavage motif. Inspection of the Oct1 substrates revealed that the N-termini of the intermediates typically carry a destabilizing amino acid residue according to the N-end rule of protein degradation, whereas mature proteins carry stabilizing N-terminal residues. We compared the stability of intermediate and mature forms of Oct1 substrate proteins in organello and in vivo and found that Oct1 cleavage increases the half-life of its substrate proteins, most likely by removing destabilizing amino acids at the intermediate's N-terminus. Thus Oct1 converts unstable precursor intermediates generated by MPP into stable mature proteins.