A new organic solvent-tolerant strain Bacillus megaterium AU02 which secretes an organic solvent-tolerant protease was isolated from milk industry waste. Statistical methods were employed to achieve optimum protease production of 43.6 U/ml in shake flask cultures. The productivity of the protease was increased to 53 U/ml when cultivated under controlled conditions in a 7-L fermentor. The protease was purified to homogeneity by a three-step process with 24 % yield and specific activity of 5,375 U/mg. The molecular mass of the protease was found to be 59 kDa. The enzyme was active over a wide range of pH (6.0-9.0), with an optimum activity at pH 7.0 and temperature from 40 to 70 degrees C having an optimum activity at 50 degrees C. The thermal stability of the enzyme increased significantly in the presence of CaCl2, and it retained 90 % activity at 50 degrees C for 3 h. The K-m and V-max values were determined as 0.722 mg/ml and 0.018 U/mg respectively. The metalloprotease exhibited significant stability in the presence of organic solvents with log P values more than 2.5, nonionic detergents and oxidising agent. An attempt was made to test the synthesis of aspartame precursor (Cbz-Asp-Phe-NH2) which was catalysed by AU02 protease in the presence of 50 % DMSO. These properties of AU02 protease make it an ideal choice for enzymatic peptide synthesis in organic media.