A stromal processing peptidase (SPP) cleaves a broad range of precursors targeted to the chloroplast, yielding proteins for numerous biosynthetic pathways in different compartments. SPP contains a signature zinc-binding motif, His-X-X-Glu-His, that places it in a metallopeptidase family which includes the mitochondrial processing peptidase. Here, we have investigated the mechanism of cleavage by SPP, a late, yet key event in the import pathway. Recombinant SPP removed the transit peptide from a variety of precursors in a single endoproteolytic step. Whereas the mature protein was immediately released, the transit peptide remained bound to SPP. SPP converted the transit peptide to a subfragment form that it no longer recognized. We conclude that SPP contains a specific binding site for the transit peptide and additional proteolysis by SPP triggers its release. A stable interaction between SPP and an intact transit peptide was directly demonstrated using a newly developed binding assay. Unlike recombinant SPP, a chloroplast extract rapidly degraded both the transit peptide and subfragment. A new degradative activity, distinguishable from SPP, was identified that is ATP- and metal-dependent. Our results indicate a regulated sequence of events as SPP functions during precursor import, and demonstrate a previously unrecognized ATP-requirement for transit peptide turnover.