Recombinant human insulin-like growth factor II (IGF-II), produced as a soluble extracellular fusion protein, was shown to be proteolytically degraded in Escherichia coli. In contrast, the fusion protein secreted from Staphylococcus aureus was stable and the full length product could be recovered by affinity chromatography. After site specific cleavage of the fusion protein, soluble IGF-II with biological activity was obtained without refolding procedures. These results demonstrate that a eukaryotic protein unstable in E. coli can be stabilized by expression in a Gram positive host. The full-length fusion protein from S. aureus was used to characterize the protease responsible for the degradation in E. coli. Biochemical and genetic analysis suggests a specific degradation by the outer membrane protease (OmpT).