We have recently identified in serum an acid protease which is capable of generating des(1-3)IGF-I from intact IGF-I. Here we have utilized a synthetic substrate with the sequence, biotin-G-P-E-T-L-C-BSA which contains the N-terminal sequence of IGF-I, to investigate the levels of this protease activity in streptozotocin-diabetic rats. Protease activity, quantified in terms of the amount of the biotin label lost, was determined in serum and hepatic extracts from normal control rats, diabetic rats and insulin-treated diabetic rats. Both the serum protease activity and protease activity in hepatic extracts were significantly increased in diabetic rats compared with control rats (P<0.02 and P<0.005). Following acute administration of insulin, a rapid and marked reduction in serum protease activity was observed; with an approximately 50% reduction apparent at 30 min (P<0.001). Chronic insulin treatment of diabetic rats also significantly reduced the serum and hepatic protease activity to the levels seen in control rats. A positive correlation between protease activity and serum glucose level was observed (r=0.58, P<0.005). The abundance of Spi 2.1 mRNA, a serine protease inhibitor, capable of inhibiting the IGF-I protease activity in vitro, was significantly decreased in the liver of diabetic rats and insulin treatment of diabetic rats did not normalize Spi 2.1 mRNA levels. These data suggest that the conversion of IGF-I to the more active des(1-3)IGF-I variant may be enhanced in diabetic animals. Since serum IGF-I levels are reduced in diabetic rats, increased des(1-3)IGF-I-generating protease activity would enhance the functional activity of the circulating IGF-I.