Recent literature has suggested that pyroglutamate (PCA) formation in stratum corneum occurs by spontaneous cyclization of glutamine residues derived from filaggrin breakdown. This paper describes an enzymatic alternative. Epidermal homogenates from hairless mice were found to catalyze the formation of PCA from both glutamine and glutamic acid at pH 6.2. Enzyme activity responsible for the first step in this reaction, gamma-glutamyl peptide formation, was partially purified using ammonium sulfate precipitation followed by ion exchange, gel filtration, and hydroxylapatite chromatography. Enzyme preparations free of gamma-glutamyl cyclotransferase activity (which forms PCA from certain gamma-glutamyl peptides) catalyzed formation of gamma-glutamyl-glutamine from glutamine and gamma-glutamyl-glutamate from glutamic acid. Enzyme preparations catalyzed hydrolysis of a variety of gamma-glutamyl peptides but did not split non-gamma-glutamyl peptides or the transpeptidase substrate gamma-glutamyl-rho-nitroanilide. Ammonium sulfate fractions containing both gamma-glutamyl peptidase and gamma-glutamyl cyclotransferase activity catalyzed linear formation of PCA from glutamic acid for periods of up to 19 h. Using gamma-glutamyl-leucine as a substrate, gamma-glutamyl peptidase activity was found to be much higher in crude extracts from epidermis than in preparations from liver, kidney, spleen, intestine, lung, brain, or heart. This activity has not, to our knowledge, been previously described in mammalian tissues.