Digestion of hCG by a mixture of carboxypeptidases B and Y results in an enzyme dose- and incubation time-dependent increase in its ability to stimulate the adenylate cyclase (AC) of human thyroid membranes. Treated under the same conditions [3 h at 37 C; enzyme to hCG ratio, 0.04 (wt/wt)], partially and highly purified hCG preparations display an increase of about 300% in thyroid AC-stimulating activity, while TSH displays a 30% decrease. In contrast, carboxypeptidase digestion of hCG under these conditions has no significant effect on its activity in the rat testis AC assay. The carboxypeptidase digestion results in cleavage of carboxyl-terminal amino acid residues 142--145 from the hCG beta-subunit; digestion of the hCG alpha-subunit is much less effective, as the carboxy-terminal amino acid residue 92 is removed from only about 13% of the hCG molecules. In accord with the results of amino acid analysis, a slight, if any, decrease in apparent molecular weight is found by gel filtration and polyacrylamide gel electrophoresis. In addition, carboxypeptidase digestion results in antigenic alterations of the molecule, as shown by a flatter slope of the dose-response curve in a hCG RIA and a 70% decrease in potency in a RIA that uses an antiserum to the hCG beta carboxy-terminal peptide. These data demonstrate that partial digestion of the hCG molecule with carboxypeptidase results in an increase in human thyroid AC-stimulating activity, with retention of the rat testis AC-stimulating activity.