Cathepsin P is a member of a family of placentally expressed cathepsins (PECs). The closest human homolog of cathepsin P is cathepsin L, a broad specificity enzyme that has functions in many tissues in addition to placenta. The gene duplications that gave rise to the PECs provide a rare opportunity to define proteolytic functions in placenta, a transient organ unique to mammals. Peptidyl substrate and inhibitor libraries have shown that cathepsin P has evolved an unusually restricted preference for substrates containing hydrophobic amino acids. Proteomic techniques were used to probe for substrates of this enzyme. Recombinant cathepsin P was incubated with rat choriocarcinoma (Rcho-1) cell proteins to identify substrates using two-dimensional difference gel electrophoresis. Substrate proteins were excised from gels and characterized by trypsin digestion and MALDI MS/MS. Two endoplasmic reticulum (ER) proteins, gp96 and calreticulin, emerged as potential substrates, and western blotting showed that these proteins are processed by cathepsin P from their C-terminus, removing the KDEL ER retention signal. Immunohistochemistry showed that a portion of cathepsin P co-localizes with calreticulin in Rcho-1 cells. Extracellular calreticulin induces differentiation of Rcho-1 cells, indicating a potential role of cathepsin P in processing and secretion of calreticulin during differentiation of trophoblast giant cells.