Proteolytic degradation (processing) of antigen by antigen-presenting cells is a major regulatory step in the activation of a T lymphocyte immune response. However, the enzymes responsible for antigen processing remain largely undefined. In this study we show that cathepsin E, and not the ubiquitous lysosomal cathepsin D, is the major aspartic proteinase in a murine antigen-presenting cell line, A20. This enzyme is localized to a non-lysosomal compartment of the endosomal system in these cells. Functional studies using a highly specific inhibitor of cathepsin E show that this enzyme is essential for the processing of ovalbumin by this cell line. Thus, cathepsin E, whose function was hitherto unknown, may play a major role in antigen processing.