Cathepsin D (EC 3.4.23.5) is a lysosomal protease suspected to play important roles in protein catabolism, antigen processing, degenerative diseases, and breast cancer progression. Determination of the crystal structures of cathepsin D and a complex with pepstatin at 2.5 A resolution provides insights into inhibitor binding and lysosomal targeting for this two-chain, N-glycosylated aspartic protease. Comparison with the structures of a complex of pepstatin bound to rhizopuspepsin and with a human renin-inhibitor complex revealed differences in subsite structures and inhibitor-enzyme interactions that are consistent with affinity differences and structure-activity relationships and suggest strategies for fine-tuning the specificity of cathepsin D inhibitors. Mutagenesis studies have identified a phosphotransferase recognition region that is required for oligosaccharide phosphorylation but is 32 A distant from the N-domain glycosylation site at Asn-70. Electron density for the crystal structure of cathepsin D indicated the presence of an N-linked oligosaccharide that extends from Asn-70 toward Lys-203, which is a key component of the phosphotransferase recognition region, and thus provides a structural explanation for how the phosphotransferase can recognize apparently distant sites on the protein surface.