The prohormone convertase SPC2 (PC2) participates in the processing of proinsulin, proglucagon, and a variety of other neuroendocrine precursors, acting either alone or in conjunction with the structurally related dense-core granule convertase SPC3 (PC3/PC1). We have generated a strain of mice lacking active SPC2 by introducing the neomycin resistance gene (Neor) into the third exon of the mSPC2 gene. This gene insertion results in the synthesis of an exon 3-deleted form of SPC2 that does not undergo autoactivation and is not secreted. The homozygous mutant mice appear to be normal at birth. However, they exhibit a small decrease in rate of growth. They also have chronic fasting hypoglycemia and a reduced rise in blood glucose levels during an intraperitoneal glucose tolerance test, which is consistent with a deficiency of circulating glucagon. The processing of proglucagon, prosomatostatin, and proinsulin in the alpha, delta, and beta cells, respectively, of the pancreatic islets is severely impaired. The islets in mutant mice at 3 months of age show marked hyperplasia of alpha and delta cells and a relative diminution of beta cells. SPC2-defective mice offer many possibilities for further delineating neuroendocrine precursor processing mechanisms and for exploring more fully the physiological roles of many neuropeptides and peptide hormones.