Cysteine protease that plays a key role in cytoplasm to vacuole transport (Cvt) and autophagy by mediating both proteolytic activation and delipidation of atg8 (PubMed:23950735). Required for selective autophagic degradation of the nucleus (nucleophagy) as well as for mitophagy which contributes to regulate mitochondrial quantity and quality by eliminating the mitochondria to a basal level to fulfill cellular energy requirements and preventing excess ROS production (By similarity). The protease activity is required for proteolytic activation of atg8: cleaves the C-terminal amino acid of atg8 to reveal a C-terminal glycine (PubMed:23950735). Atg8 ubiquitin-like activity requires the exposure of the glycine at the C-terminus for its conjugation to phosphatidylethanolamine (PE) and its insertion to membranes, which is necessary for autophagy. The atg8-PE conjugate mediates tethering between adjacent membranes and stimulates membrane hemifusion, leading to expansion of the autophagosomal membrane during autophagy. In addition to the protease activity, also catalyzes deconjugation of PE-conjugated forms of atg8 during macroautophagy: atg8 delipidation is required to release the protein from membranes, which facilitates multiple events during macroautophagy, and especially for efficient autophagosome biogenesis, the assembly of atg9-containing tubulovesicular clusters into phagophores/autophagosomes, and for the disassembly of PAS-associated ATG components. Atg8 delipidation by atg4 also recycles atg8-PE generated on inappropriate membranes to maintain a reservoir of unlipidated atg8 that is required for autophagosome formation at the PAS (By similarity). Plays a role in meiosis and sporulation (PubMed:19778961). [protein]-C-terminal L-amino acid-glycyl-phosphatidylethanolamide + H2O = [protein]-C-terminal L-amino acid-glycine + a 1,2-diacyl-sn-glycero-3-phosphoethanolamine Impairs atg8-processing. Belongs to the peptidase C54 family.