We have investigated the mechanism by which the complement protease, Factor D, achieves its high specificity for the cleavage of Factor B in complex with C3(H2O). Kinetic experiments showed that Factor B and C3(H2O) associate with a KD of >/=2.5 microM and that Factor D acts on this complex with a second-order rate constant of kcat/KM >/= 2 x 10(6) M-1 s-1, close to the rate of a diffusion-controlled reaction for proteins of this size. In contrast, Factor D, which is a member of the trypsin family of serine proteases, was 10(3)-10(4)-fold less active than trypsin toward both thioester and p-nitroanilide substrates containing an arginine at P1. Furthermore, peptides spanning the Factor B cleavage site were not detectably cleaved by Factor D (kcat/KM /=9 kcal/mol of binding energy to stabilize the transition state for reaction. In support of this, we demonstrate that chemical modification of Factor D at a single lysine residue that is distant from the active site abolishes the activity of the enzyme toward Factor B while not affecting activity toward small synthetic substrates. We propose that Factor D may exemplify a special case of the induced fit mechanism in which the requirement for conformational activation of the enzyme results in a substantial increase in substrate specificity.