Genome sequence analyses predict many proteins that are structurally related to proteases but lack catalytic residues, thus making functional assignment difficult. We show that one of these proteins (ACN-1), a unique multi-domain angiotensin-converting enzyme (ACE)-like protein from Caenorhabditis elegans, is essential for larval development and adult morphogenesis. Green fluorescent protein-tagged ACN-1 is expressed in hypodermal cells, the developing vulva, and the ray papillae of the male tail. The hypodermal expression of acn-1 appears to be controlled by nhr-23 and nhr-25, two nuclear hormone receptors known to regulate molting in C. elegans. acn-1(RNAi) causes arrest of larval development because of a molting defect, a protruding vulva in adult hermaphrodites, severely disrupted alae, and an incomplete seam syncytium. Adult males also have multiple tail defects. The failure of the larval seam cells to undergo normal cell fusion is the likely reason for the severe disruption of the adult alae. We propose that alteration of the ancestral ACE during evolution, by loss of the metallopeptidase active site and the addition of new protein modules, has provided opportunities for novel molecular interactions important for post-embryonic development in nematodes.