Biosynthesis of peptide hormones and neuropeptides requires proteolytic excision of active peptides from inactive proprotein precursors, an activity carried out by subtilisin-like proprotein convertases (SPCs) in constitutive or regulated secretory pathways. The Drosophila amontillado (amon) gene encodes a homolog of the mammalian PC2 protein, an SPC functioning in the regulated secretory pathway in neuroendocrine tissues. We have identified amon mutants by isolating ethylmethanesulfonate (EMS)-induced lethal and visible mutations defining two complementation groups in the amon interval at 97D1 of the third chromosome. DNA sequencing identified the amon complementation group and the DNA sequence change for each of the nine amon alleles isolated. amon mutants display partial embryonic lethality, are defective in larval growth, and arrest during the first to second instar larval molt, indicating a role for the gene during embryogenesis and larval molting. Mutant larvae can be rescued by heat-shock induced expression of the amon protein and rescued larvae arrest at the subsequent larval molt, suggesting that amon is also required for the second to third instar larval molt. We used this conditional rescue system to ask whether amon is required for later developmental transitions. We find that amon is required during pupal development for head eversion and leg and wing extension. Some amon mutants also fail to undergo abdominal differentiation, suggesting that AMON may act on as yet unidentified peptide hormones controlling epidermal differentiation. Polyclonal antibodies against AMON were used to localize the protein to larval gut endocrine cells and neurosecretory cells in the central nervous system (CNS) during larval and pupal development. Interestingly, AMON localizes to the insulin-like peptide (ILP)-containing medial neurosecretory cells (MNCs) in the brain, suggesting AMON may process and activate Drosophila ILPs. We have also demonstrated a genetic interaction between amon mutants and two components of the insulin signaling pathway; the insulin receptor (inr) and five of the seven Drosophila insulin-like peptides. Together, our data indicate that the amon proprotein convertase is required during embryogenesis, larval and pupal development in Drosophila and support the hypothesis that AMON acts to proteolytically process peptide hormones that orchestrate developmental transitions.