Dipeptidyl peptidase IV (DPPIV) is a member of the prolyl oligopeptidase family of serine proteases. DPPIV removes dipeptides from the N terminus of substrates, including many chemokines, neuropeptides, and peptide hormones. Specific inhibition of DPPIV is being investigated in human trials for the treatment of type II diabetes. To understand better the molecular determinants that underlie enzyme catalysis and substrate specificity, we report the crystal structures of DPPIV in the free form and in complex with the first 10 residues of the physiological substrate, Neuropeptide Y (residues 1-10; tNPY). The crystal structure of the free form of the enzyme reveals two potential channels through which substrates could access the active site-a so-called propeller opening, and side opening. The crystal structure of the DPPIV/tNPY complex suggests that bioactive peptides utilize the side opening unique to DPPIV to access the active site. Other structural features in the active site such as the presence of a Glu motif, a well-defined hydrophobic S1 subsite, and minimal long-range interactions explain the substrate recognition and binding properties of DPPIV. Moreover, in the DPPIV/tNPY complex structure, the peptide is not cleaved but trapped in a tetrahedral intermediate that occurs during catalysis. Conformational changes of S630 and H740 between DPPIV in its free form and in complex with tNPY were observed and contribute to the stabilization of the tetrahedral intermediate. Our results facilitate the design of potent, selective small molecule inhibitors of DPPIV that may yield compounds for the development of novel drugs to treat type II diabetes.