Proteases play important roles in a variety of disease processes. Understanding their biological functions underpins the efforts of drug discovery. We have developed a bioluminescent protease assay using a circularly permuted form of firefly luciferase, wherein the native enzyme termini were joined by a peptide containing a protease site of interest. Protease cleavage of these mutant luciferases greatly activates the enzyme, typically over 100 fold. The mutant luciferase substrates are easily generated by molecular cloning and cell-free translation reactions and thus the protease substrates do not need to be chemically synthesized or purchased. The assay has broad applicability using a variety of proteases and their cognate sites and can sensitively detect protease activity. In this report we further demonstrate its utility for the evaluation of protease recognition sequence specificity and subsequent establishment of an optimized assay for the identification and characterization of protease inhibitors using high throughput screening.