The heteronemertine worm Cerebratulus lacteus produces a family of three structurally homologous proteins that function as direct lytic factors for a variety of cells [Kem, W. R., & Blumenthal, K. M. (1978) J. Biol. Chem. 253, 5752-5757]. It is demonstrated herein that the hemolytic activity of the most abundant variant, designated toxin A-III, is unaffected by either extensive iodination or complete blockage of carboxylate groups by tyramine or glycine ethyl ester. Iodination of A-III with lactoperoxidase produced a derivative that is preferentially labeled at His-67 and to a lesat the hemolytic activity of the most abundant variant, designated toxin A-III, is unaffected by either extensive iodination or complete blockage of carboxylate groups by tyramine or glycine ethyl ester. Iodination of A-III with lactoperoxidase produced a derivative that is preferentially labeled at His-67 and to a lesat the hemolytic activity of the most abundant variant, designated toxin A-III, is unaffected by either extensive iodination or complete blockage of carboxylate groups by tyramine or glycine ethyl ester. Iodination of A-III with lactoperoxidase produced a derivative that is preferentially labeled at His-67 and to a lesser extent at Tyr-6. The ratio of labeling at these two positions is approximately 3 to 1. Iodinated A-III is completely insoluble in 10% C13CCOOH. However, following treatment with trypsin-containing liposomes, 15% of the input counts are converted to a Cl3CCOOH-soluble form. Incubation with free trypsin in the presence of liposomes containing N alpha-tosyl-L-lysine chloromethyl ketone results in approximately 60% of the input counts becoming C13CCOOH soluble. Free trypsin renders toxin A-III 90% soluble in 10% C1CCOOH. Electrophoretic analysis of the labeled tryptic peptides generated in the presence of liposomes shows that internal trypsin hydrolyzed the Arg-13-Ser-14 bond, generating exclusively peptide T-1 (residues 1-13) while external trypsin produces peptide T-11 (residues 60-71) as the major radioactive product. These data are consistent with insertion of at least the amino-terminal 13 residues of A-III into the liposome and imply that membrane penetration by this protein may be important for its cytolytic activity.