Carboxypeptidase E (CPE) is involved in the biosynthesis of peptide hormones and neurotransmitters, including insulin. One of the features of type 2 diabetes mellitus (T2DM) is an elevation in the proinsulin level and/or proinsulin/insulin molar ratio, suggesting that mutations in proinsulin processing enzymes may contribute to the development of T2DM. We scanned CPE for mutations in a collection of Ashkenazi T2DM families and identified five novel single nucleotide polymorphisms (SNPs). An SNP in the 283 rd codon, c.847C>T, changes arginine to tryptophan (R283W). The residue Arg283 is conserved among CPE orthologs as well as most enzymatically active metallocarboxypeptidases. Of the 272 Ashkenazi T2DM pedigrees screened, we found four families segregating R283W. Within these four families, patients who inherited one copy of this variant had much earlier age of onset for T2DM. The R283W CPE protein cleaves peptide substrates with substantially lower efficiencies and is less stable at elevated temperature. In addition, the R283W CPE variant has a narrower pH optimum and is much less active at pH 6.0-6.5, indicating that the R283W CPE variant would be substantially less active than wild type CPE in the trans-Golgi network and immature secretory vesicles where the enzyme functions in vivo. To summarize, we uncovered a rare non-conservative missense mutation in CPE and demonstrated that the mutant protein has altered enzymatic properties. We predict that this mutant could cause hyperproinsulinism and diabetes in the homozygous state.