The mitochondrial processing peptidase (MPP) of Neurospora crassa is constituted by an alpha- and a beta-subunit. We have purified alpha-MPP after expression in Escherichia coli while beta-MPP was purified from mitochondria. A fusion protein between precytochrome b2 and mouse dihydrofolate reductase was expressed in E. coli, and the purified protein was used as substrate for MPP. Both subunits of MPP are required for processing. MPP removes the matrix targeting signal of cytochrome b2 by a single cut, and the resulting presequence peptide is 31 amino acid residues in length. It acts as a competitive inhibitor of processing but has a approximately 30-fold lower affinity for MPP than the preprotein. Competition assays show that MPP recognizes the COOH-terminal portion of the presequence of cytochrome b2 rather than the NH2-terminal part which has the potential to form an amphiphilic helix. Substitution of arginine in position -2 of the matrix targeting sequence of cytochrome b2 prevents processing but not import of a chimeric precursor. Substitution of the tyrosyl residue in position +1 also prevents processing, indicating that MPP interacts with sequences COOH-terminal to the cleavage site. Non-cleavable preprotein is still recognized by MPP. Our data suggest that processing peptidase and import machinery recognize distinct structural elements in preproteins which, however, can be overlapping.