Proteolytic clipping of histone H3 has been identified in many organisms. Despite several studies, the mechanism of clipping, the substrate specificity, and the significance of this poorly understood epigenetic mechanism are not clear. We have previously reported histone H3 specific proteolytic clipping and a protein inhibitor in chicken liver. However, the sites of clipping are still not known very well. In this study, we attempt to identify clipping sites in histone H3 and to determine the mechanism of inhibition by stefin B protein, a cysteine protease inhibitor. By employing site-directed mutagenesis and in vitro biochemical assays, we have identified three distinct clipping sites in recombinant human histone H3 and its variants (H3.1, H3.3, and H3t). However, post-translationally modified histones isolated from chicken liver and Saccharomyces cerevisiae wild-type cells showed different clipping patterns. Clipping of histone H3 N-terminal tail at three sites occurs in a sequential manner. We have further observed that clipping sites are regulated by the structure of the N-terminal tail as well as the globular domain of histone H3. We also have identified the QVVAG region of stefin B protein to be very crucial for inhibition of the protease activity. Altogether, our comprehensive biochemical studies have revealed three distinct clipping sites in histone H3 and their regulation by the structure of histone H3, histone modifications marks, and stefin B.