1. Pneumococci contain an intracellular enzyme or enzymes which (a) hydrolyze to some extent intact protein and (b) hydrolyze with striking avidity peptones. The optimum reaction for hydrolysis is pH 7 to 7.8, which also represents the optimum for the growth of pneumococcus. For convenience the terms "protease" and "peptonase" have been used, but no assumption is made as to whether the two actions, proteolysis and peptolysis, are due to two separate enzymes or are two activities of the same enzyme. 2. Solutions of intracellular substance of comparable enzymic activity may be prepared by dissolving the bacteria in bile, in sodium choleate, or by mechanical and autolytic disintegration of the cell. 3. The rapidity with which peptone is hydrolyzed is proportional to the concentration of the enzyme. 4. Heating the enzyme for 10 minutes at 100 degrees C. destroys its activity. 5. Increasing the acidity to pH 5, the acid death-point of pneumococcus, suspends activity but does not destroy the enzyme, for activity is restored by readjustment to pH 7.8. 6. Attenuation of virulence to 1/1,000,000 of the original virulence had no measurable quantitative effect on the enzyme activity.