Carboxyl (C)-terminal processing proteases (CTPs) participate in protective and regulatory proteolysis in bacteria. The PDZ domain is central to the activity of CTPs but plays inherently different regulatory roles. For example, the PDZ domain inhibits the activity of the signaling protease CtpB by blocking the active site but is required for the activation of Prc (or Tsp), a tail-specific protease that degrades SsrA-tagged proteins. Here, by structural and functional analyses, we show that in the unliganded resting state of Prc, the PDZ domain is docked inside the bowl-shaped scaffold without contacting the active site, which is kept in a default misaligned conformation. In Prc, a hydrophobic substrate sensor distinct from CtpB engages substrate binding to the PDZ domain and triggers a structural remodeling to align the active-site residues. Therefore, this work reveals the structural basis for understanding the contrasting roles of the PDZ domain in the regulation of CTPs. IMPORTANCE Prc, also known previously as Tsp, is the founding member of the carboxyl-terminal processing protease (CTP) family of PDZ domain-containing proteases that include CtpA and CtpB. The substrate-binding PDZ domain is responsible for regulating the protease activity of CTP proteases; however, the regulatory role of PDZ domain is stimulatory in Prc but inhibitory in CtpA/B. By determining a series of crystal structures of Prc in the unliganded resting state, this study presents the structural basis for PDZ-dependent activation of Prc, the results of which explain the contrasting roles of the PDZ domain in the regulation of the protease activity of CTPs.