A secretory granule-associated enzymatic activity that converts mono-[125I]-D-Tyr-Val-Gly into mono-[125I]-D-Tyr-Val-NH2 has been studied. The activity is primarily soluble and shows optimal activity at pH 7 to pH 8. Amidation activity was stimulated 9-fold by addition of optimal amounts of copper (3 microM). In the presence of optimal copper, ascorbate stimulated the reaction 7-fold; none of the other reduced or oxidized cofactors tested was as effective. Taking into account the dependence of the reaction on ascorbate and molecular oxygen and the production of glyoxylate [2], it is suggested that the alpha-amidation enzyme is a monooxygenase. Lineweaver Burk plots with D-Tyr-Val-Gly as the varied substrate demonstrated Michelis-Menten type kinetics with the values of Km and Vmax increasing with the addition of ascorbate to the assay. A variety of peptides ending with a COOH-terminal Gly residue act as inhibitors of the reaction. Two synthetic peptides, gamma 2MSH and ACTH(1-14), with carboxyl termini similar to the presumed physiological substrates for the enzyme, act as competitive inhibitors with similar K1 values. It is likely that this secretory granule alpha-amidation activity is involved in the physiological biosynthetic alpha-amidation of a wide range of bioactive peptides.