Prolipoprotein signal peptidase, a unique endopeptidase which recognizes glycyl glyceride cysteine as a cleavage site, was characterized in an in vitro assay system using purified prolipoprotein as the substrate. This enzyme did not require phospholipids for its catalytic activity and was found to be localized in the inner cytoplasmic membrane of the Escherichia coli cell envelope. Globomycin inhibited this enzyme activity in vitro with a half-maximal inhibiting concentration of 0.76 nM. Nonionic detergent, such as Nikkol or Triton X-100, was required for the in vitro activity. The optimum pH and reaction temperature of prolipoprotein signal peptidase were pH 7.9 and 37-45 degrees C, respectively. Phosphatidylglycerol:prolipoprotein glyceryl transferase (glyceryl transferase) activity was measured using [2-3H]glycerol-labeled JE5505 cell envelope and [35S]cysteine-labeled MM18 cell envelope as the donor and acceptor of glyceryl moiety, respectively. 3H and 35S dual-labeled glyceryl cysteine was identified in the product of this enzymatic reaction. The optimal pH and reaction temperature for glyceryl transferase were pH 7.8 and 37 degrees C, respectively.