Thyroid hormones are synthesized within the thyroglobulin (Tg) molecule and must be released to reach the circulation and exert their metabolic effect. We have previously shown that three lysosomal endopeptidases, cathepsin B, D, and L, are active in the early stages of intrathyroidal degradation of Tg but do not themselves release free hormone. The current study examines the role of exopeptidases as the next step in thyroid hormone release. Human thyroidal cathepsin B and two partially purified exopeptidases, dipeptidyl peptidase II (DP-PII) and lysosomal dipeptidase I (LDPI), were used to digest the 20-kDa N-terminal peptide of rabbit Tg, which contains the dominant T4 site of Tg at residue 5. Cathepsin B acted as an endopeptidase initially, producing small T4-containing peptides. After more extended digestion, it also acted as an exopeptidase, producing the dipeptide T4-Gln, corresponding to residues 5 and 6 of Tg. Lysosomal dipeptidase I alone had no effect on 20 kDa but acted in combination with cathepsin B to release T4 from the T4-Gln dipeptide. Although addition of DPPII increased the release of hormone from 125I-Tg by an extract of DPPII-deficient lysosomes, it had no apparent effect on the degradation of the 20-kDa peptide, either alone or in combination with cathepsin B or LDPI. Thus DPPII may act in synergy with some other endopeptidase, or alternatively, may play a role in the release of hormone from other sites in Tg. We conclude that the N-terminus of Tg, which contains its major hormonogenic site, is particularly susceptible to hydrolysis by the endopeptidase cathepsin B and that cathepsin B additionally has an important exopeptidase action that allows it to release a T4 dipeptide that is then further degraded by LDPI to release free T4.