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Angiotensin-I converting enzyme (ACE) is a zinc dipeptidylcarboxypeptidase with two active domains and plays a key role in the regulation of blood pressure and electrolyte homeostasis, making it the principal target in the treatment of cardiovascular disease. More recently, the tetrapetide N-acetyl-Ser-Asp-Lys-Pro (Ac-SDKP) has emerged as a potent antifibrotic agent and negative regulator of haematopoietic stem cell differentiation which is processed exclusively by ACE. Here we provide a detailed biochemical and structural basis for the domain preference of Ac-SDKP. The high resolution crystal structures of N-domain ACE in complex with the dipeptide products of Ac-SDKP cleavage were obtained and offered a template to model the mechanism of substrate recognition of the enzyme. A comprehensive kinetic study of Ac-SDKP and domain co-operation was performed and indicated domain interactions affecting processing of the tetrapeptide substrate. Our results further illustrate the molecular basis for N-domain selectivity and should help design novel ACE inhibitors and Ac-SDKP analogues that could be used in the treatment of fibrosis disorders.