Carboxypeptidase S-1 from Penicillium janthinellum has been isolated by affinity chromatography and characterized. The enzyme activity is unusually stable in organic solvents, e.g. 80% methanol. The hydrolysis of peptide substrates is apparently dependent on three ionizable groups. One group, with pKa of 4.0-4.5, is a catalytically essential residue in its deprotonated form, and another group with a pKa of 6.5-7.0 functions in its protonated form, apparently as the binding site for the C-terminal carboxylate group of peptide substrates. The third group, with a pKa of 5.0-5.5, appears to be a carboxylic acid group located at the S1 binding site. Deprotonation of this group to form a negatively charged carboxylate group has an adverse effect on the hydrolysis of substrates with hydrophobic amino acid residues at the P1 position and a beneficial effect on the hydrolysis of substrates with the positively charged arginyl or lysyl residues at this position. The substrate preference of the enzyme is consequently pH dependent. At pH 6.0 (the optimum for ester hydrolysis) the enzyme is essentially specific for Bz-X-OMe substrates where X = Arg and Lys. Using amino acids and amino acid amides as nucleophiles carboxypeptidase S-1 efficiently catalyses the formation of peptide bonds by aminolysis of peptides (transpeptidation reactions) and peptide esters provided that the substrate contains a basic amino acid residue at the P1 position, e.g. Bz-Arg-OBu and Bz-Arg-Leu-OH. With several nucleophiles the fractions of aminolysis exceed those previously reported in similar studies with carboxypeptidase Y and malt carboxypeptidase II.