Exposure of insulin to insulin protease (insulinase, EC 3.4.22.11), a degradative enzyme with considerable specificity toward insulin, results in alterations in the properties of the insulin molecule. Limited degradation by the enzyme results in a decrease in the ability of insulin to bind to membrane receptors with less change in the immunoprecipitability or trichloracetic acid precipitability of the hormone. Limited degradation by insulin protease also alters insulin so that the molecule becomes susceptible to attack by nonspecific endopeptidases which have no effect on unaltered insulin. These data demonstrate the production of an intermediate in the proteolytic degradation of insulin. By labeling with [14C]dansyl chloride, an insulin intermediate with three amino-terminal residues, glycine, phenylalanine, and leucine, was identified. Analysis of this intermediate demonstrated that it was composed of an intact A chain and a B chain cleaved between residues B16 and B17, with the three peptide chains held together by disulfide bonds. Based on these findings, we hypothesize that a stepwise degradation of insulin occurs in vivo and that an early step in the process is the cleavage between B16 and B17 that renders the molecule sucseptible to further degradation by nonspecific proteases.