Protein splicing is the protein analogue of RNA splicing in which the central portion (spacer) of a protein precursor is excised and the amino- and carboxy-terminal portions of the precursor reconnected. The yeast Tfp1 protein undergoes a rapid protein splicing reaction to yield a spliced 69 kDa polypeptide and an excised 50 kDa spacer protein. We have demonstrated that the 69 kDa species arises by reformation of a bona fide peptide bond. Deletion analyses indicate that only sequences in the central spacer protein of the Tfp1 precursor are critical for the protein splicing reaction. A fusion protein in which only the Tfp1 spacer domain was inserted into an unrelated protein also underwent efficient splicing, demonstrating that all of the information required for protein splicing resides within the spacer domain. Alteration of Tfp1p splice junction residues blocked or kinetically impaired protein splicing. A protein splicing model is presented in which asparagine rearrangement initiates the self-excision of the spacer protein from the Tfp1 precursor. The Tfp1 spacer protein belongs to a new class of intervening sequences that are excised at the protein rather than the RNA level.