The endosomal compartment of hepatic parenchymal cells contains an acidic endopeptidase, endosomal acidic insulinase, which hydrolyzes internalized insulin and generates the major primary end product A(1--21)-B(1--24) insulin resulting from a major cleavage at residues Phe(B24)-Phe(B25). This study addresses the nature of the relevant endopeptidase activity in rat liver that is responsible for most receptor-mediated insulin degradation in vivo. The endosomal activity was shown to be aspartic acid protease cathepsin D (CD), based on biochemical similarities to purified CD in 1) the rate and site of substrate cleavage, 2) pH optimum, 3) sensitivity to pepstatin A, and 4) binding to pepstatin A-agarose. The identity of the protease was immunologically confirmed by removal of greater than 90% of the insulin-degrading activity associated with an endosomal lysate using polyclonal antibodies to CD. Moreover, the elution profile of the endosomal acidic insulinase activity on a gel-filtration TSK-GEL G3000 SW(XL) high performance liquid chromatography column corresponded exactly with the elution profile of the immunoreactive 45-kDa mature form of endosomal CD. Using nondenaturating immunoprecipitation and immunoblotting procedures, other endosomal aspartic acid proteases such as cathepsin E and beta-site amyloid precursor protein-cleaving enzyme (BACE) were ruled out as candidate enzymes for the endosomal degradation of internalized insulin. Immunofluorescence studies showed a largely vesicular staining pattern for internalized insulin in rat hepatocytes that colocalized partially with CD. In vivo pepstatin A treatment was without any observable effect on the insulin receptor content of endosomes but augmented the phosphotyrosine content of the endosomal insulin receptor after insulin injection. These results suggest that CD is the endosomal acidic insulinase activity which catalyzes the rate-limiting step of the in vivo cleavage at the Phe(B24)-Phe(B25) bond, generating the inactive A(1--21)-B(1--24) insulin intermediate.