Insulin-degrading enzyme (IDE) is a component of a cytosolic complex that includes multicatalytic proteinase (MCP), the major cytoplasmic proteolytic activity. Insulin, the primary substrate for IDE, inhibits the proteolytic activity of the IDE-MCP complex but not of purified MCP. This provides a regulatory role for IDE in cellular proteolysis and a potential mechanism for intracellular insulin action. To examine the specificity and to explore the mechanisms for the IDE-MCP interaction, we studied the functional interaction of a variety of peptides with the complex. Atrial natriuretic peptide (ANP), relaxin, glucagon, proinsulin, and insulin-like growth factor II (IGF-II) bind to and are degraded by IDE. These peptides have significant inhibitory effects on the chymotrypsin-like and trypsin-like MCP catalytic activities but not the peptidyl-glutamyl hydrolyzing activity. A panel of peptides that are not ligands of IDE had no effect. To explore the potential mechanism for the IDE control of MCP activity, dose response curves for insulin-like growth factor I (IGF-I) and IGF-II effects on MCP chymotrypsin-like activity were determined. IGF-II, which (similar to insulin) is a good substrate for IDE, had a substantial inhibitory effect, whereas IGF-I, which is bound but poorly degraded, had little inhibitory activity on MCP. Proinsulin, another ligand of IDE that is tightly bound but poorly degraded, had a partial effect on MCP activity, but inhibited the full insulin effect. These data suggest a requirement for both the binding and degradation of IDE ligands for the full inhibition of MCP. Insulin-sized degradation products, substrates of IDE, also inhibited MCP activity. Further examination of the insulin effect on MCP included kinetic studies. Insulin produced a noncompetitive inhibition of both the chymotrypsin-like and trypsin-like activities of MCP. These data suggest that the insulin-IDE effect on MCP is due to conformational changes in the IDE-MCP complex and provide an intracellular mechanism of action for insulin.