The Leu17-Phe18 bond of beta-endorphin is cleaved by a specific endopeptidase that generates the biologically active peptide gamma-endorphin. gamma-Endorphin-generating endopeptidase (gamma EGE) activity was determined by a radiometric assay, using as substrate a radioactively labeled, N- and C-terminally protected pentapeptide: Ac-Val-Thr-Leu-Lys( [14C]CH3)2-NHCH3, a derivative of beta-endorphin-(15-19). Here we report the tissue distribution of gamma EGE activity and its cellular localization in the testis. gamma EGE activity was present in the cytosolic fraction of most tissues. Highest specific activity occurred in the testis, ovary, and the uterus (10-16 nmol X mg protein-1 X h-1). In testis highest specific gamma EGE activity was found in the tubules (42 nmol X mg protein-1 X h-1) and lowest in Leydig cells (8 nmol X mg protein-1 X h-1). Further fractionation of the tubules showed that the germinal cell fraction had a higher specific activity (24 nmol X mg protein-1 X h-1) than the Sertoli cell fraction (8 nmol X mg protein-1 X h-1). In testis depleted of the germinal cells by prenatal irradiation of the rat or hypophysectomy, specific activity of gamma EGE activity decreased 50-fold and 4-fold, respectively. In testis depleted of Leydig cells by treatment of rats with ethane dimethyl sulfonate, specific gamma EGE activity did not decrease. Adrenalectomy had no effect on the enzyme activity. The results suggest that the germinal cells are sites of processing of beta-endorphin into alpha- and gamma-endorphins. It is concluded that 1) gamma EGE activity is widely distributed in tissues; 2) highest gamma EGE activity is located in reproductive tissues; and 3) in the testis gamma EGE activity is mainly associated in the germinal cells.