The hepatitis C virus (HCV) H strain polyprotein is cleaved to produce at least nine distinct products: NH2-C-E1-E2-NS2-NS3-NS4A-NS4B-NS5A-NS5B-CO OH. In this report, a series of C-terminal truncations and fusion with a human c-myc epitope tag allowed identification of a tenth HCV-encoded cleavage product, p7, which is located between the E2 and NS2 proteins. As determined by N-terminal sequence analysis, p7 begins with position 747 of the HCV H strain polyprotein. p7 is preceded by a hydrophobic sequence at the C terminus of E2 which may direct its translocation into the endoplasmic reticulum, allowing cleavage at the E2/p7 site by host signal peptidase. This hypothesis is supported by the observation that cleavage at the E2/p7 and p7/NS2 sites in cell-free translation studies was dependent upon the addition of microsomal membranes. However, unlike typical cotranslational signal peptidase cleavages, pulse-chase experiments indicate that cleavage at the E2/p7 site is incomplete, leading to the production of two E2-specific species, E2 and E2-p7. Possible roles of p7 and E2-p7 in the HCV life cycle are discussed.