Cleavage of parathyroid hormone (PTH) by isolated Kupffer cells from rat liver was examined. Iodinated PTH labeled at position 43 was converted into two radioactive fragments which were shown by Edman degradation to have residues 35 and 38 as their NH2 termini. Cleavage at these positions is characteristic of cathepsin D. Amino-terminal fragments were detected by bioassay of fractions obtained by high performance liquid chromatography. These fragments eluted in positions characteristic of the 1-34 and 1-37 peptides also previously shown to be produced by purified cathepsin D. The putative 1-37 fragment was rapidly converted to 1-34 upon digestion with cathepsin D, whereas the putative 1-34 fragment was not further digested by this enzyme, behavior previously shown to be characteristic of 1-37 and 1-34 bovine PTH. Fragmentation of PTH as measured by generation of fragments soluble in trichloroacetic acid was inhibited by methylamine, monensin, and ammonium chloride. In addition, monensin significantly inhibited production of both carboxyl- and amino-terminal fragments. Finally, active PTH fragments were also produced by elicited peritoneal macrophages. It is concluded that Kupffer cells, and other macrophages, can produce active fragments of PTH which appear in the medium. These fragments may be generated by cathepsin D within the cells.