This report demonstrates that the investigational prostatic carcinoma marker known as the prostate-specific membrane antigen (PSM) possesses hydrolytic activity with the substrate and pharmacologic properties of the N-acetylated alpha-linked acidic dipeptidase (NAALADase). NAALADase is a membrane hydrolase that has been characterized in the mammalian nervous system on the basis of its catabolism of the neuropeptide N-acetylaspartylglutamate (NAAG) to yield glutamate and N-acetylaspartate and that has been hypothesized to influence glutamatergic signaling processes. The immunoscreening of a rat brain cDNA expression library with anti-NAALADase antisera identified a 1428-base partial cDNA that shares 86% sequence identity with 1428 bases of the human PSM cDNA [Israeli, R. S., Powell, C. T., Fair, W. R. & Heston, W.D.W. (1993) Cancer Res. 53, 227-230]. A cDNA containing the entire PSM open reading frame was subsequently isolated by reverse transcription-PCR from the PSM-positive prostate carcinoma cell line LNCaP. Transient transfection of this cDNA into two NAALADase-negative cell lines conferred NAAG-hydrolyzing activity that was inhibited by the NAALADase inhibitors quisqualic acid and beta-NAAG. Thus we demonstrate a PSM-encoded function and identify a NAALADase-encoding cDNA. Northern analyses identify at least six transcripts that are variably expressed in NAALADase-positive but not in NAALADase-negative rat tissues and human cell lines; therefore, PSM and/or related molecular species appear to account for NAAG hydrolysis in the nervous system. These results also raise questions about the role of PSM in both normal and pathologic prostate epithelial-cell function.