Mouse anterior pituitary corticotropic tumor cells (AtT-20/D-16v) were homogenized and subjected to subcellular fractionation. A secretory granule associated enzyme activity was detected which could convert D-Tyr-Val-Gly into D-Tyr-Val-NH2. The enzyme activity was dependent on the presence of molecular oxygen, copper ions, and reduced ascorbate. Potent endogenous inhibitors of the enzyme obscured the activity unless appropriate levels of copper ions were added. The production of radiolabeled D-Tyr-Val-NH2 from labeled D-Tyr-Val-Gly was inhibited by a wide variety of peptides possessing COOH-terminal glycine residues but not by a number of other peptides, suggesting that many peptides with COOH-terminal glycine residues can function as substrates in the alpha-amidation reaction. Kinetic studies with varied concentrations of D-Tyr-Val-Gly demonstrated Michaelis-Menten kinetics; both the Km for D-Tyr-Val-Gly and maximum velocity (Vmax) increased upon addition of ascorbate to the reaction. Under optimized assay conditions, the secretory granule pool contains enough alpha-amidation activity to alpha-amidate all the relevant peptides in granules in a small fraction of the total time required for complete biosynthetic processing. Secretion of alpha-amidation activity was stimulated along with secretion of pro-ACTH/endorphin-derived peptides upon addition of synthetic corticotropin releasing factor or 8-bromo-cAMP.