Bioactive peptides frequently terminate with an essential alpha-amide that is generated from a COOH-terminal Gly in a two-step enzymatic process occurring within the lumen of the secretory pathway. The first enzyme, peptidylglycine alpha-hydroxylating monooxygenase, is a member of the copper- and ascorbate-dependent monooxygenase family. The second enzyme, peptidyl-alpha-hydroxyglycine alpha-amidating lyase (PAL, EC 4.3.2.5), has no known homologues. Examination of the catalytic core of PAL (PALcc) using trypsin, BNPS skatole, and COOH-terminally truncated proteins failed to identify stable subdomains. Treatment of PALcc with divalent metal ion chelators inactivated the enzyme and increased its protease and thermal sensitivity, suggesting a structural role for bound metal. Purified PALcc contained 0.7 +/- 0.4 mol of zinc/mol of enzyme. Since the four Cys residues in PALcc form two disulfide bonds, potential Zn ligands include conserved Asp, Glu, and His residues. The secretion and activity of PALcc bearing mutations in each conserved Asp, Glu, and His residue were evaluated. Mutation of three conserved Asp residues and two conserved His residues yielded a protein that could not be secreted, suggesting that these residues play a structural role. Analysis of mutants that were efficiently secreted identified three His residues along with single Asp residue that may play a role in catalysis. These essential residues occur in a pattern unique to PAL.