Within the lysosomal cysteine protease family, cathepsin B is unique due to its ability to act both as an endopeptidase and a peptidyldipeptidase. This latter capacity to remove C-terminal dipeptides has been attributed to the presence of a 20-residue insertion, termed the occluding loop, that blocks the primed terminus of the active site cleft. Variants of human procathepsin B, where all or part of this element was deleted, were expressed in the yeast Pichia pastoris. A mutant, where the 12 central residues of the occluding loop were deleted, autoprocessed, albeit more slowly than the wild type proenzyme, to yield a mature form of the enzyme with endopeptidase activity comparable with the wild-type cathepsin B, but totally lacking exopeptidase activity. This deletion mutant showed a 40-fold higher affinity for the inhibitor cystatin C, suggesting that the occluding loop normally restricts access of this inhibitor to the active site. In addition, the binding affinity of the cathepsin B propeptide, which is a potent inhibitor of this enzyme, was 50-fold increased, consistent with the finding that the loop reorients on activation of the proenzyme. These results suggest that the endopeptidase activity of cathepsin B is an evolutionary remnant since, as a consequence of its membership in the papain family, the propeptide must be able to bind unobstructed through the full length of the active site cleft.