AbstractProteolysis within the lipid bilayer is poorly understood, in particular the regulation of substrate cleavage. Rhomboids are a family of ubiquitous intramembrane serine proteases that harbour a buried active site and are known to cleave transmembrane substrates with broad specificity. In vitro gel and Förster resonance energy transfer (FRET)‐based kinetic assays were developed to analyse cleavage of the transmembrane substrate psTatA (TatA from Providencia stuartii). We demonstrate significant differences in catalytic efficiency (kcat/K0.5) values for transmembrane substrate psTatA (TatA from Providencia stuartii) cleavage for three rhomboids: AarA from P. stuartii, ecGlpG from Escherichia coli and hiGlpG from Haemophilus influenzae demonstrating that rhomboids specifically recognize this substrate. Furthermore, binding of psTatA occurs with positive cooperativity. Competitive binding studies reveal an exosite‐mediated mode of substrate binding, indicating allostery plays a role in substrate catalysis. We reveal that exosite formation is dependent on the oligomeric state of rhomboids, and when dimers are dissociated, allosteric substrate activation is not observed. We present a novel mechanism for specific substrate cleavage involving several dynamic processes including positive cooperativity and homotropic allostery for this interesting class of intramembrane proteases.