We have analyzed the expression and function of Cecpz-1, a Caenorhabditis elegans cathepsin Z-like cysteine protease gene, during development of the worm. The cpz-1 gene is expressed in various hypodermal cells of all developmental stages and is specifically expressed in the gonads and the pharynx of adult worms. Disruption of cpz-1 function by RNA interference or cpz-1(ok497) deletion mutant suggests that cpz-1 has a role in the molting pathways. The presence of the native CPZ-1 protein in the hypodermis/cuticle of larval and adult stages and along the length of the pharynx of adult worms, as well as the cyclic expression of the transcript during larval development, supports such function. We hypothesize that the CPZ-1 enzyme functions directly as a proteolytic enzyme degrading cuticular proteins before ecdysis and/or indirectly by processing other proteins such as proenzymes and/or other proteins that have an essential role during molting. Notably, an impressive level of the CPZ-1 native protein is present in both the new and the old cuticles during larval molting, in particular in the regions that are degraded prior to shedding and ecdysis. The similar localization of the related Onchocerca volvulus cathepsin Z protein suggests that the function of CPZ-1 during molting might be conserved in other nematodes. Based on the cpz-1 RNA interference and cpz-1 (ok497) deletion mutant phenotypes, it appears that cpz-1 have additional roles during morphogenesis. Deletion of cpz-1 coding sequence or inhibition of cpz-1 function by RNA interference also caused morphological defects in the head or tail region of larvae, improperly developed gonad in adult worms and embryonic lethality. The CPZ-1 native protein in these affected regions may have a role in the cuticular and the basement membrane extracellular matrix assembly process. The present findings have defined a critical role for cathepsin Z in nematode biology.