The DNA sequence of the entire gene for penicillinase of Bacillus licheniforms 749 has recently been determined (Neugebauer, K., Sprengel, R., and Schaller, H. (1981) Nucleic Acid Res. 9, 2577-2588). Here we show that a primary translation product (Mr 35,000) can be synthesized in vitro by translation of B. licheniformis mRNA in a EScherichia coli cell-free system, or in vivo, after phenylethyl alcohol treatment of B. licheniformis. The partial NH2-terminal sequence of the in vivo synthesized primary translation product, termed prepenicillinase, was in agreement with the NH2-terminal sequence deduced from the DNA sequence. Furthermore, when a B. licheniformis membrane fraction plus the nonionic detergent Nikkol were present in the in vitro translation system, prepenicillinase was proteolytically processed to a polypeptide (Mr 31,250) that comigrated electrophoretically with the membrane-bound form of this enzyme. The partial NH2-terminal sequence of this processed form showed that it had lost 26 NH2-terminal residues present in prepenicillinase. We propose that the observed cleavage was due to membrane-associated and detergent-activated signal peptidase and consequently, that the 26-residue-long extension of nascent prepenicillinase functions in translocation across the prokaryotic plasma membrane. Based on our partial protein sequence data and the DNA sequence data, the signal peptidase-processed penicillinase starts with a Cys residue. Cotranslational and post-translational modifications of this NH2-terminal Cys, similar to those observed in the E. coli lipoprotein, might be the only means by which penicillinase can be anchored to the outer leaflet of the B. licheniformis plasma membrane.