Abstract: Transmembrane signaling between intracellular compartments is often controlled by regulated proteolysis. Escherichia coli respond to misfolded or unfolded outer-membrane porins (OMPs) in the periplasm by inducing sigma(E)-dependent transcription of stress genes in the cytoplasm. This process requires a proteolytic cascade initiated by the DegS protease, which destroys a transmembrane protein (RseA) that normally binds to and inhibits sigma(E). Here, we show that peptides ending with OMP-like C-terminal sequences bind the DegS PDZ domain, activate DegS cleavage of RseA, and induce sigma(E)-dependent transcription. These results suggest that DegS acts as a sensor of envelope stress by binding unassembled OMPs. DegS activation involves relief of inhibitory interactions between its PDZ and protease domains. Peptide binding to inhibitory PDZ domains in proteases related to DegS, including DegP/HtrA, may also regulate the degradation of specific substrates by these enzymes.