The active site of penicillin acylase of Escherichia coli contains two conserved arginine residues. The function of these arginines, alphaArg145 and betaArg263, was studied by site-directed mutagenesis and kinetic analysis of the mutant enzymes. The mutants alphaArg145-->Leu (alphaArg145Leu), alphaArg145Cys and alphaArg145Lys were normally processed and exported to the periplasm, whereas expression of the mutants betaArg263Leu, betaArg263Asn and betaArg263Lys yielded large amounts of precursor protein in the periplasm, indicating that betaArg263 is crucial for efficient processing of the enzyme. Either modification of both arginine residues by 2,3-butanedione or replacement by site-directed mutagenesis yielded enzymes with a decreased specificity (kcat/K(m)) for 2-nitro-5-[(phenylacetyl)amino]benzoic acid, indicating that both residues are important in catalysis. Compared with the wild type, the alphaArg145 mutants exhibited a 3-6-fold-increased preference for 6-aminopenicillanic acid as the deacylating nucleophile compared with water. Analysis of the steady-state parameters of these mutants for the hydrolysis of penicillin G and phenylacetamide indicated that destabilization of the Michaelis-Menten complex accounts for the improved activity with beta-lactam substrates. Analysis of pH-activity profiles of wild-type enzyme and the betaArg263Lys mutant showed that betaArg263 has to be positively charged for catalysis, but is not involved in substrate binding. The results provide an insight into the catalytic mechanism of penicillin acylase, in which alphaArg145 is involved in binding of beta-lactam substrates and betaArg263 is important both for stabilizing the transition state in the reaction and for correct processing of the precursor protein.