The endo-beta-1,3-1,4-glucanase enzyme of Bacillus subtilis C120, when synthesized in Escherichia coli, is located mainly in the cytoplasm, but enzyme activity is also detected in the periplasmic space and in the extracellular medium. The proportion recovered in the extracellular medium is not altered by changes in the levels of synthesis of the enzyme. Lysis of E. coli cells is ruled out as the cause of the secretion by the normal localization of beta-galactosidase, an intracellular protein. However, beta-lactamase, which is normally found in the periplasmic space, is detected in the extracellular medium of E. coli transformants containing beta-glucanase plasmids, suggesting that the presence of beta-glucanase in the cell alters the permeability of the outer membrane. The beta-glucanase proteins found in the extracellular medium, the periplasmic space and the cytoplasm have the same electrophoretic mobilities as the secreted enzyme of B. subtilis. Amino-terminal sequencing has shown that the beta-glucanase enzyme in the intracellular fraction of E. coli is processed at a site two amino acids distant from the processing site used in B. subtilis.