Proneuropeptides are packaged into dense-core vesicles in which they are processed into active peptides by copackaged enzymes. Proprotein convertases (PCs) cleave precursors after dibasic residues, and carboxypeptidases remove basic residues from the C terminals. We show here that the Caenorhabditis elegans egl-21 gene encodes a protein that is very similar to carboxypeptidase E (CPE) and is broadly expressed in the nervous system. Mutants lacking either egl-21 CPE or egl-3, which encodes the C. elegans ortholog of PC type 2 (PC2), were defective for processing endogenously expressed FMRFamide (Phe-Met-Arg-Phe-NH2)-related peptides (FaRPs). Mutants lacking the unc-104 kinesin motor protein were defective for anterograde movement of dense-core vesicle components, including egl-3 PC2, egl-21 CPE, and FaRPs. We provide evidence that egl-3 PC2 and egl-21 CPE mutants have diminished acetylcholine release at neuromuscular junctions (NMJs). Taken together, these results suggest that egl-21 CPE and egl-3 PC2 process endogenous neuropeptides that facilitate acetylcholine release at C. elegans NMJs.