Signal peptidases of prokaryotic organisms reside in the outer leaflet of the cytoplasmic membrane and catalyze the hydrolytic cleavage of a specific peptide bond of membrane-imbedded preproteins to liberate mature proteins for secretion. In this manuscript, we report new and efficient peptide substrates for SPase and their use to explore features of this enzyme's reaction mechanism. The enzyme used in this study was recombinant SPase I of Escherichia coli that had been solubilized with Triton X-100 and purified to near homogeneity. Our new substrates are based on the fluorogenic peptide reported by Zhong and Benkovic [(1998) Anal. Biochem. 255, 66], Y(NO2)FSASALA approximately KIK(Abz)-NH(2) (Y(NO2), 3-nitro-L-tyrosine; K(Abz), epsilon-(2-aminobenzoyl)-L-Lys; hydrolysis at A approximately K). We found that when a signal peptide-like sequence is appended onto the N-terminus of this peptide to produce K(5)-L(10)-Y(NO2)FSASALA approximately KIK(Abz)-NH(2), k(c)/K(m) increases from 85 to 2.5 x 10(6) M(-)(1) s(-)(1). k(c)/K(m) decreases with increasing concentration of Triton X-100 micelles under the condition [Triton X-100](micelle) > [S](0) > [E](0). We explain this apparent inhibition with a model of surface dilution kinetics in which "empty" micelles compete with substrate-containing micelles for micelle-bound enzyme. Fusion of micelle-bound enzyme with a substrate-containing micelle leads to formation of productive E:S substrate complexes while fusion of micelle-bound enzyme with an "empty" micelle is nonproductive and inhibitory. The dependence of steady-state kinetic parameters for the SPase-catalyzed hydrolysis of K(5)-L(10)-Y(NO2)FSASALA approximately KIK(Abz)-NH(2) on [Triton X-100](micelle) supports this model. Product inhibition and solvent isotope effects were also investigated and could be interpreted in the context of this model.