Carboxypeptidases perform many diverse functions in the body. The well-studied pancreatic enzymes (carboxypeptidases A1, A2 and B) are involved in the digestion of food, whereas a related enzyme (mast-cell carboxypeptidase A) functions in the degradation of other proteins. Several members of the metallocarboxypeptidase gene family (carboxypeptidases D, E, M and N) are more selective enzymes and are thought to play a role in the processing of intercellular peptide messengers. Three other members of the metallocarboxypeptidase gene family do not appear to encode active enzymes; these members have been designated CPX-1, CPX-2 and AEBP1/ACLP. In this review, we focus on the recently discovered carboxypeptidase Z (CPZ). This enzyme removes C-terminal Arg residues from synthetic substrates, as do many of the other members of the gene family. However, CPZ differs from the other enzymes in that CPZ is enriched in the extracellular matrix and is broadly distributed during early embryogenesis. In addition to containing a metallocarboxypeptidase domain, CPZ also contains a Cys-rich domain that has homology to Wnt-binding proteins; Wnts are important signaling molecules during development. Although the exact function of CPZ is not yet known, it is likely that this protein plays a role in development by one of several possible mechanisms.