Infection by hepatitis C viruses (HCVs) is a serious medical problem with no broadly effective treatment available for the progression of chronic hepatitis. The catalytic activity of a viral serine protease located in the N-terminal one-third of nonstructural protein 3 (NS3) is required for polyprotein processing at four site-specific junctions. The three-dimensional crystal structure of the NS3-NS4A co-complex [Kim, J. L., Morgenstern, K. A., Lin, C., Fox, T., Dwyer, M. D., Landro, J. A., Chambers, S. P., Markland, W., Lepre, C. A., O'Malley, E. T., Harbeson, S. L., Rice, C. M., Murcko, M. A., Caron, P. R., & Thomson, J. A. (1996) Cell 87, 343-355] delineates a small hydrophobic region within the 54-residue NS4A protein that intercalates with and makes extensive contacts to the core of the protease. The current investigation addresses the mechanism of NS3 protease catalytic activation by NS4A utilizing a small synthetic NS4A peptide (residues 1678-1691 of the virus polyprotein sequence) and the recombinantly expressed protease domain of NS3. The addition of NS4A dramatically increased NS3 kcat and kcat/Km catalytic parameters when measured against small peptide substrates representing the different site-specific junctions of the polyprotein. The catalytic effect of natural and non-natural amino acid substitutions at the P1 position in a 5A/5B peptide substrate was investigated. NS3-NS4A demonstrated a marked catalytic preference for the cysteine residue commonly found in authentic substrates. The pH dependence of the NS3 hydrolysis reaction is not affected by the presence of NS4A. This result suggests that NS4A does not change the pKa values of the active site residues of NS3 protease. A steady state kinetic analysis was performed and indicated that the binding of NS4A and the peptide substrate occurs in an ordered fashion during the catalytic cycle, with NS4A binding first. Two distinct kinetic classes of peptidyl inhibitors based upon the 5A/5B cleavage site were identified. An NS4A-independent class is devoid of prime residues. A second class of inhibitors is NS4A-dependent and contains a natural or non-natural cyclic amino acid substituted for the commonly found P1' residue serine. These inhibitors display an up to 80-fold increase in affinity for NS3 protease in the presence of NS4A. Sequential truncation of prime and P residues from this inhibitor class demonstrated the fact that the P4' and P1' residues are crucial for potent inhibition. The selectivity of this NS4A effect is interpreted using a model of the 5A/5B decapeptide substrate bound to the active site of the NS3-NS4A structure.