Chromogranin A (CgA), the major soluble protein in chromaffin granules, is proteolytically processed to generate biologically active peptides including the catecholamine release inhibitory peptide catestatin. Here we sought to determine whether cysteine protease cathepsin L (CTSL), a novel enzyme for proteolytic processing of neuropeptides, acts like the well-established serine proteases [prohormone convertase (PC)1/3 or PC2] to generate catestatin by proteolytic processing of CgA. We found that endogenous CTSL colocalizes with CgA in the secretory vesicles of primary rat chromaffin cells. Transfection of PC12 cells with an expression plasmid encoding CTSL directed expression of CTSL toward secretory vesicles. Deconvolution fluorescence microscopy suggested greater colocalization of CTSL with CgA than the lysosomal marker LGP110. The overexpression of CTSL in PC12 cells caused cleavage of full-length CgA. CTSL also cleaved CgA in vitro, in time- and dose-dependent fashion, and specificity of the process was documented through E64 (thiol reagent) inhibition. Mass spectrometry on CTSL-digested recombinant CgA identified a catestatin-region peptide, corresponding to CgA(360-373). The pool of peptides generated from the CTSL cleavage of CgA inhibited nicotine-induced catecholamine secretion from PC12 cells. CTSL processing in the catestatin region was diminished by naturally occurring catestatin variants, especially Pro370Leu and Gly364Ser. Among the CTSL-generated peptides, a subset matched those found in the catestatin region in vivo. These findings indicate that CgA can be a substrate for the cysteine protease CTSL both in vitro and in cella, and their colocalization within chromaffin granules in cella suggests the likelihood of an enzyme/substrate relationship in vivo.