Most peptide hormones and growth factors are matured from larger inactive precursor proteins by proteolytic processing and further post-translational modification. Whether or how posttranslational modifications contribute to peptide bioactivity is still largely unknown. We address this question here for TWS1 (Twisted Seed 1), a peptide regulator of embryonic cuticle formation in Arabidopsis thaliana. Using synthetic peptides encompassing the N-and C-terminal processing sites and the recombinant TWS1 precursor as substrates, we show that the precursor is cleaved by the subtilase SBT1.8 at both the N-and the C-terminus of TWS1. Recognition and correct processing at the N-terminal site depended on sulfation of an adjacent tyrosine residue. Arginine 302 of SBT1.8 was found to be required for sulfo-tyrosine binding and for accurate processing of the TWS1 precursor. The data reveal a critical role for post-translational modification, here tyrosine sulfation of a plant peptide hormone precursor, in mediating processing specificity and peptide maturation.