The apoptotic cysteine protease, caspase-3, is expressed in cells as an inactive 32-kDa precursor from which 17 kDa (p17) and 12 kDa (p12) subunits of the mature caspase-3 are proteolytically generated during apoptosis. Two amino acid sequences, ESMD ↓ S (amino acids 25-29) and IETD ↓ S (amino acids 172-176), in the precursor have been defined as the cleavage sites for the production of the p17 and p12 subunits. Using a cell-free assay system, we demonstrate that the caspase-3 precursor appears to be cleaved first at the IETD ↓ S site, producing the p12 subunit and a 20-kDa (p20) peptide. Subsequently, the p20 is cleaved at the ESMD ↓ S site, generating the mature p17 subunit. The cleavage at the IETD ↓ S site required a protease activity that was selectively inhibited by the peptide, Ac-IETD-CHO (acetyl-IETD- aldehyde), and other protease inhibitors, such as the cowpox viral serine protease inhibitor, CrmA, and N-α-tosyl-L-phenylalanine chloromethyl ketone. The protease that catalyzed the cleavage at the ESMD/S site was selectively inhibited by another peptide, Ac-ESMD-CHO (acetyl-ESMD-aldehyde). More interestingly, the caspase-3 inhibitor, Ac-DEVD-CHO, but not the caspase-1 inhibitor, Ac-YVAD-CHO, also selectively inhibited the protease activity that cleaves at the ESMD ↓ S site. This indicated that the cleavage at the ESMD ↓ S site was either autocatalytic or that it required a caspase-3-like activity. In summary, we demonstrate that production of the p17:p12 form of caspase-3 is a sequential two-step process and appears to require two distinct enzymatic activities.