A bacterium, strain NM 5-3, isolated from soil exhibited the highest cyclo(Gly-Leu) (CGL)-hydrolyzing activity and was identified as Agrobacterium radiobacter. The reaction products from CGL were dipeptides (Leu-Gly and Gly-Leu) and amino acids (Leu and Gly). Inhibitors for the dipeptidase of this strain did not inhibit the hydrolysis of CGL to dipeptides, indicating that two distinct enzymes, CGLase and a dipeptidase, were involved in its hydrolysis. The activities of these two enzymes were separated by anion-exchange column chromatography. The results indicated that strain NM5-3 hydrolyzed CGL via the dipeptides to the corresponding amino acids. The CGLase fraction was found to catalyze the hydrolysis of cyclo(Gly-D-Leu), cyclo(Gly-Gly), cyclo(L-Ala-Gly), and cyclo(D-Ala-Gly). On the other hand, the dipeptidase fraction exhibited L-specific substrate specificity.