The Staphylococcus aureus Agr quorum-sensing system modulates the expression of extracellular virulence factors. The Agr system is controlled by an autoinducing peptide (AIP) molecule that is secreted during growth. In the AIP biosynthetic pathway, two proteolytic events are required to remove the leader and tail segments of AgrD, the peptide precursor of AIP. The only protein known to be involved in this pathway is AgrB, a membrane endopeptidase that removes the AgrD carboxy-tail. We designed a synthetic peptide substrate and developed an assay to detect peptidases that can remove the N-terminal leader of AIP. Several peptidase activities were detected in S. aureus extracts and these activities were present in both wild-type and agr mutant strains. Only one of these peptidases cleaved in the correct position and all properties of this enzyme were consistent with type I signal peptidase. Subsequent cloning and purification of the two known S. aureus signal peptidases, SpsA and SpsB, demonstrated that only SpsB catalysed this activity in vitro. To investigate the role of SpsB in AIP biosynthesis, SpsB peptide inhibitors were designed and characterized. The most effective inhibitor blocked SpsB activity in vitro and showed antibacterial activity against S. aureus. Importantly, the inhibitor reduced expression of an Agr-dependent reporter and inhibited AIP production in S. aureus, indicating a role for SpsB in quorum sensing.