The invariant chain (Ii) is associated with major histocompatibility complex class II molecules during early stages of their intracellular transport. In an acidic endosomal/lysosomal compartment, it is proteolytically cleaved and removed from class II heterodimers. Participation of aspartic and cysteine proteases has been observed in in vitro degradation of Ii, but the specific enzymes responsible for its in vivo processing are as yet undefined. We have previously isolated a noncovalent complex of the lysosomal cysteine protease cathepsin L with a peptide fragment derived from the p41 form of Ii from human kidney. Here we show that this Ii fragment, which is identical to the alternatively spliced segment of p41, is a very potent competitive inhibitor of cathepsin L (equilibrium inhibition constant Ki = 1.7 X 10(-12) M). It inhibits two other cysteine proteases, cathepsin H and papain, but to much lesser extent. Cysteine proteases cathepsins B, C, and S, as well as representatives of serine, aspartic, and metalloproteases, are not inhibited at all. These findings suggest a novel role for p41 in the regulation of various proteolytic activities during antigen processing and presentation. The Ii inhibitory fragment shows no sequence homology with the known cysteine protease inhibitors, and may, therefore, represent a new class.