The stromal processing peptidase (SPP) cleaves a large diversity of chloroplast precursor proteins, removing an N-terminal transit peptide. We predicted previously that this key step of the import pathway is mediated by features of the transit peptide that determine precursor binding and cleavage followed by transit peptide conversion to a degradable substrate. Here we performed competition experiments using synthesized oligopeptides of the transit peptide of ferredoxin precursor to investigate the mechanism of these processes. We found that binding and processing of ferredoxin precursor depend on specific interactions of SPP with the region consisting of the C-terminal 12 residues of the transit peptide. Analysis of four other precursors suggests that processing depends on the same region, although their transit peptides are highly divergent in primary sequence and length. Upon processing, SPP terminates its interaction with the transit peptide by a second cleavage, converting it to a subfragment form. From the competition experiments we deduce that SPP releases a subfragment consisting of the transit peptide without its original C terminus. Interestingly, examination of the ATP-dependent metallopeptidase activity responsible for degradation of transit peptide subfragments suggests that it may recognize other unrelated peptides and, hence, act separately from SPP as a novel stromal oligopeptidase.