A new protease inhibitor was purified to apparent homogeneity from a culture medium of Photorhabdus luminescens by ammonium sulfate precipitation and preparative isoelectric focusing followed by affinity chromatography. Ph. luminescens, a bacterium symbiotically associated with the insect-parasitic nematode Heterorhabditis bacteriophora, exists in two morphologically distinguishable phases (primary and secondary). It appears that only the secondary-phase bacterium produces this protease inhibitor. The protease inhibitor has an M:(r) of approximately 12000 as determined by SDS-PAGE. Its activity is stable over a pH range of 3.5-11 and at temperatures below 50 degrees C. The N-terminal 16 amino acids of the protease inhibitor were determined as STGIVTFKND(X)GEDIV and have a very high sequence homology with the N-terminal region of an endogenous inhibitor (IA-1) from the fruiting bodies of an edible mushroom, Pleurotus ostreatus. The purified protease inhibitor inactivated the homologous protease with an almost 1:1 stoichiometry. It also inhibited proteases from a related insect-nematode-symbiotic bacterium, Xenorhabdus nematophila. Interestingly, when present at a molar ratio of 5 to 1, this new protease inhibitor completely inactivated the activity of both trypsin and elastase. The activity of proteinase A and cathepsin G was partially inhibited by this bacterial protease inhibitor, but it had no effect on chymotrypsin, subtilisin, thermolysin and cathepsins B and D. The newly isolated protease inhibitor from the secondary-phase bacteria and its specific inhibition of its own protease provides an explanation as to why previous investigators failed to detect the presence of protease activity in the secondary-phase bacteria. The functional implications of the protease inhibitor are also discussed in relation to the physiology of nematode-symbiotic bacteria.