The subcellular localization of the adenovirus type 2 core polypeptide specific protease activity was investigated using an in vitro assay system. The protease activity was recovered exclusively from infected cell nuclei and was insoluble, sedimenting with the membrane fraction. Endogenous activity could be demonstrated in young virions which contain precursor PVII molecules. This protease activity only became sensitive to L-1-tosylamide-2-phenylethylchloromethyl ketone- or phenylmethylsulfonyl fluoride-mediated inhibition after disruption of the virus particles by sonication, suggesting that the enzyme was internally located. The putative precursors to virus particles, referred to as top components, which do not contain a full complement of viral DNA, did not contain protease activity. The protease released from sonicated virions converted exogenous PVII substrate molecules to polypeptide VII. The noninfectious H2ts1 virus particles synthesized at the nonpermissive temperature phenotypically resemble young virions, but unlike their wild type counterparts, were devoid of protease activity. The results show that the protease enters the precursor particles concurrently with the viral chromosome and that its presence is a prerequisite for the processing and subsequent maturation of infectious adenovirions.