Myelencephalon-specific protease (MSP), first identified in the rat and now known to have a human homologue (human kallikrein 6), is preferentially expressed in the central nervous system (CNS), compared with nonneural tissues. MSP has been postulated to have trypsin-like activity, is upregulated in response to glutamate receptor-mediated excitotoxic injury in the CNS, and is downregulated in the brain of Alzheimer's patients. The preferential expression of this enzyme by oligodendrocytes in CNS white matter points to a role in myelin homeostasis. To further characterize the activity and substrate specificity of this newly identified enzyme, we have heterologously expressed MSP in a baculovirus/insect cell line system. We demonstrate that recombinant MSP exhibits a broad specificity for cleavage after arginine but not lysine residues, with kinetic characteristics intermediate between trypsin and pancreatic kallikrein. We show that the pro form of MSP does not self-activate but, rather, requires cleavage after lysine, indicating that mature active MSP is regulated by a distinct protease. MSP may be regulated in part by autolysis, since the active protein is readily inactivated through autolysis at specific internal arginine positions. Additionally, we show that MSP is abundantly expressed in inflammatory cells at sites of demyelination in the Theiler's murine encephalomyelitis virus (TMEV) model of multiple sclerosis (MS). In conjunction with data demonstrating the ability of MSP to degrade myelin-associated as well as several extracellular matrix proteins, these findings delineate MSP as a broad-specificity arginine-specific protease with the potential to play a key role in immune-mediated demyelination.